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The challenge of transitioning a family owned business.
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The Family Business Dilemma
The challenge of building, growing and leaving business wealth
BROWNSTONE Capital Advisors LLC
BROWNSTONE
BROWNSTONE
By the Numbers• More than one-half of all owners are 50
years of age or older …
• More than three-fourths of all owners have 50% or more of their personal wealth tied to their business
• More than 60% do not know the value of their business
• More than two-thirds do not have a business succession plan
• 70% fail to successfully transition their business to their heirs
BROWNSTONE
By the Numbers• 76% of all businesses will fail to
transition …
Owners will sell the assets … and close the doors
INDUSTRY SECRET
Of all the businesses listed for sale … about half will fail to do so!
BROWNSTONE
By the Numbers
Conclusion …
Owners who have been successful at starting and growing their business have not developed the skills needed to transition it to support “what comes next” …
Start-Up
Growth
MaturityRenewal
Decline
Business Life Cycle
Personal Life Cycle
Business Life Cycle
BROWNSTONE
Start-Up
Growth
Maturity
Renewal
Decline
Business Life Cycle
HIGH INCOME –
LOW VALUE
BROWNSTONE
The Challenge of Family Transition
BROWNSTONE
Family Owned Business Survey …
88% …
Transition to family successors
2003 Mass Mutual Survey
The Challenge of Family Transition
BROWNSTONE
88% … desire to make a successful transition
• Gen 1 – Gen 2: 70% failure
• Gen 2 – Gen 3: 85% failure rate
• Gen 3 – Gen 4: 96% failure rate
The Challenge of Family Transition
BROWNSTONE
88% … desire to make a successful transition
• Gen 1 – Gen 2: 70% failure
• Gen 2 – Gen 3: 85% failure rate
• Gen 3 – Gen 4: 96% failure rate
Owners do a far better job of creating business wealth than in transferring wealth to their family …
Business Wealth and Wealth
BROWNSTONE
70% … failure … Creator to Successor
85% … failure … 2nd Gen to 3rd Gen
94% … failure … 3rd Gen to 4th Gen
Business Wealth and Wealth
BROWNSTONE
Failure:
Following the transition, the beneficiaries lost control of their wealth through foolish expenditures, bad investments, mismanagement, inattention, incompetence, family feuding, lawsuits, or other causes within their control.
Business Wealth and Wealth
BROWNSTONE
Worldwide phenomena …
• “Shirtsleeves to shirtsleeves in three generations”
• “Rice bowl to rice bowl …”
• “Clogs to clogs …”
Business Wealth and Wealth
BROWNSTONE
Chinese saying …
Wealth never survives
three generations
Top Level Reasons
BROWNSTONE
1. Families fail to understand that preserving wealth is a dynamic rather than a static process. Each generation must be able to create wealth. (Creation – Stasis – Entropy).
2. Families fail to apply appropriate time frames for successful wealth preservation
3. Families fail to understand that the fundamental issues of wealth preservation are qualitative, not quantitative
An Inconvenient Truth
BROWNSTONE
The continued emphasis on
maximizing the wealth to be transferred
has done NOTHING to improve the situation
The definition of insanity:
“continuing to do the same thing, over and over again, and expecting different
results.”Gertrude Stein
What Are the Reasons?
BROWNSTONE
Poor tax minimization strategies …
Poorly designed estate plans …
First Conclusion:
The Accountants and Estate Planning Attorneys are doing a great job!
4%4%
What Are the Reasons?
BROWNSTONE
1. A breakdown of Communications and Trust within the Family Unit
Communication = Consists of two root words: common and action
Common action brings alignment
Trust = Consists of three main components
1. Reliability: Do you do what you say you will?
2. Sincerity: Are you becoming whom you should?
3. Competence: Can you accomplish the task at hand?
b
60%
What Are the Reasons?
BROWNSTONE
2. Inadequately Prepared Heirs 25%
Williams Group: “… many family leaders devoted far more time preparing their estate documents than they did to preparing their heirs for the impact of those documents.”
What About Successful Transitions?
BROWNSTONE
1. Total Family Involvement
2. A Process that Integrates Decisions
3. Learning and Practicing New Skills
What’s the First Step?
BROWNSTONE
Family Mission Statement:
What is Our Shared?
Purpose of Wealth?
For what Purpose has our Family been so Blessed?
Contact
BROWNSTONE
Paul Brown, Managing Principal
Phone: 509-926-6922 (direct)
E-Mail: [email protected]
URL: www.brownstonecap.com
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