Younger generations are facing being cut out of owning family businesses by their parents, according to a recent survey.
Key Details
- A recent Wells Fargo study found that 52% of families do not want to pass their family businesses down to their children.
- Additionally, 44% of survey respondents say they worry children do not have the knowledge to protect or build wealth independently.
- Baby boomers and GenXers fear that the majority of their wealth and knowledge will disappear within two generations.
- However, 90% of respondents want to impart values that allow their children to carry on and carve their own successful paths in life.
Why It’s Important
Millennials and Zoomers have poor reputations in the workplace. Older business leaders tend to view them as entitled, lazy, and disengaged from the broader company culture, unmotivated to seek career advancement in the same way their generation was. Trends like “quiet quitting” and “funemployment” have reflected a changing attitude towards work in the lives of young people.
This change has left many older business owners with difficult options. As we previously reported, the passing of the baby-boomer generation is set to facilitate the largest wealth transfer in history over the next few decades, amounting to $78.3 trillion. Small-business owners are left with the difficult decision of deciding to teach younger generations how to protect their life’s work or to sell their businesses and pass on money to a generation that is liable to squander it.
This transfer has additional ramifications for the small-business economy. The sudden change of power from small businesses being bought out by entrepreneurs or larger corporations could cause serious ripples in the small business economy. Alternatively, a trend of poorly prepared business leaders inheriting businesses could also spark a slow-speed decline in productive small businesses.
Possible Solutions
Kristina Schuler is a financial strategist with Paradiem LLC in Covington, Louisiana. She tells Leaders Media that baby boomers already recognize the different mindsets between themselves and their children, and there is a prevalent lack of trust already. The future of the small business economy will be determined by how they decide to train the next generation or not to carry on their small businesses.
“There is a couple of ways that the small business economy can play out. If there is not a trust aspect or a relationship built up, there’s an opportunity to hand it off after a conversation or sell it. Small business owners tend to be bought out or sold, leading to greater potential in some communities. But it would have a larger effect on the small business economy if it becomes a trend,” she says.
Schuler says that there is still a strong opportunity that the situation is affording. Small business owners do still have the chance to impart a vision of these businesses, working with their children to build trust and communication with their children and bringing in financial advisors to help facilitate a gradual transition from generation to generation. The situation is salvageable with the right tools and conversations in place.
Key Takeaways
Younger generations already have a bustling small business economy through the growth of the startup economy. There are opportunities for entrepreneurship and mentorship among enterprising young people. However, a lack of meaningful conversations and planning could lead to a situation where the stewarts of small businesses are unable to protect their family’s wealth.
“Money won’t ever go away or dissipate, but it could take a hit as young people figure out what to do with their inheritance money. If business owners sell businesses, the money will still circulate intergenerationally or within the general economy. However, if they get flooded with money unprepared, we would see frivolous or careless spending, creating bad habits long-term. It won’t pass down from generation to generation, having a greater impact several generations down the line, affecting their retirement and their kid’s retirement,” she says.
