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Chapter 15Chapter 15

Family-Owned Family-Owned BusinessesBusinesses

Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin

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Family-Owned BusinessFamily-Owned Business

Organizing/Operating Family-Organizing/Operating Family-Owned BusinessOwned BusinessFamily Relationships & BusinessFamily Relationships & BusinessPreparing For The Next Preparing For The Next Generation & Management Generation & Management SuccessionSuccessionTax/Estate PlanningTax/Estate Planning

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2 - 3McGraw-Hill/Irwin

Family & BusinessFamily & BusinessWritten Mission Written Mission

StatementStatement

Include Children Include Children In Decisions In Decisions

Family DiscussionsFamily Discussions

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Family Mission StatementFamily Mission Statement

Start From Start From Trust/OpennessTrust/Openness

Unanimous Agreement On Unanimous Agreement On Values & VisionValues & Vision

Copies To AllCopies To AllAvoid:Avoid:

Rushing FamilyRushing FamilyFavoring An AgendaFavoring An AgendaForgetting PurposeForgetting Purpose

Photodisc

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Trends In Family BusinessTrends In Family BusinessKids Start Business & Get Kids Start Business & Get

Capital From ParentsCapital From ParentsParent Given Executive Parent Given Executive

Position PositionSpouses Working Spouses Working

Together- Service Together- Service Businesses With Businesses With TechnologyTechnology

Needs Clear Chain Of Needs Clear Chain Of CommandCommand

Royalty-Free/CORBIS

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Tips ForTips ForSpousal OwnershipSpousal Ownership

Monica Lau/Getty Images

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Daughters ConsideringDaughters ConsideringSuccession To Family BusinessSuccession To Family Business

♀Express Express

InterestInterest

♀Outside Outside

ExperienceExperience

♀Learn From Learn From

SeniorsSeniors

♀Be SensitiveBe Sensitive

♀Get InvolvedGet Involved

♀Meet WomenMeet Women

♀Define Define

YourselfYourself

♀Develop A Develop A

VisionVision

Royalty-Free/CORBIS

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SuccessfulSuccessfulFamily InteractionFamily Interaction

Founder = HeadFounder = HeadSome Family In High Some Family In High

PositionsPositionsInstill “Sense Of Instill “Sense Of

Ownership”Ownership”Deal With IncompetentsDeal With IncompetentsCompensateCompensateRecognize LimitationsRecognize Limitations

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Steps In DivorceSteps In Divorce1.1. Business AppraisalBusiness Appraisal

2.2. Negotiate BuyoutNegotiate Buyout

3.3. Decide What To Do Decide What To Do

With Stock With Stock

4.4. Seek Tax ProfessionalsSeek Tax Professionals

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Family Culture & BusinessFamily Culture & Business

Large FamiliesLarge Familieso Stay-At-Home MomStay-At-Home Momo Develop Hobbies As Develop Hobbies As

Business BusinessWorking Moms Establish Working Moms Establish

BusinessBusinesso Economy More DifficultEconomy More Difficulto Need Additional IncomeNeed Additional Incomeo Large Business No Longer Large Business No Longer

Family-FriendlyFamily-Friendly

Keith Brofsky/Getty Images

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Family ResourcesFamily Resources Borrow CapitalBorrow Capital

Sell StockSell Stock

Selling Personal Selling Personal AssetsAssets

OtherOther

PhotoLink/Getty Images

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NextNextGeneration PreparationGeneration Preparation

Start Part/Full-Start Part/Full-Time JobTime Job

Start Entry or Start Entry or Higher-Level In Higher-Level In BusinessBusiness

Outside Outside ExperienceExperience

Rotate JobsRotate Jobs

Earn Earn PromotionsPromotions

Teaching & Teaching & TrainingTraining

Leave Work At Leave Work At WorkWork

If Prepared, If Prepared, Give Give ResponsibilityResponsibility

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Succession PlanningSuccession Planning

Plan Early & Plan Early & CarefullyCarefully

Groom SuccessorGroom SuccessorDoug Menuez/Getty Images

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Succession ProblemsSuccession ProblemsTreat Treat AllAll Children Fairly Children FairlyNonfamily Employees?Nonfamily Employees?Family Concerns:Family Concerns:

o CommunicationCommunication

o ConflictConflict

o Estate TaxesEstate Taxes

More Than 1 Child More Than 1 Child SuccessionSuccession

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SuccessionSuccessionObstacles: FounderObstacles: Founder

Financial SecurityFinancial SecuritySudden Free TimeSudden Free TimeSelf-EsteemSelf-EsteemFounder Fair To Founder Fair To

Successor(s)Successor(s)Successor Ready?Successor Ready?Jealousy/ Rivalry Jealousy/ Rivalry

To SuccessorTo SuccessorEffect On SpouseEffect On Spouse

Founder’s Founder’s Fiduciary Fiduciary Responsibility To Responsibility To Nonfamily Nonfamily EmployeesEmployees

Friends Continue Friends Continue To WorkTo Work

Fear Of DeathFear Of DeathReluctance To Reluctance To

Release PowerRelease PowerCoaching Skills?Coaching Skills?

Source: Family Business Experts, www.familybusinessexperts.com

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Spouse’s Role In Spouse’s Role In BusinessBusiness

Reluctance To Discuss Reluctance To Discuss Future Beyond Parents’ Future Beyond Parents’ Life Life

Fairness vs. FavoritismFairness vs. Favoritism

Fear Of Parents’ DeathFear Of Parents’ Death

SuccessionSuccessionObstacles: FamilyObstacles: Family

Source: Family Business Experts, www.familybusinessexperts.com

Jack Hollingsworth/Getty Images

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Personal Relationship Personal Relationship With FounderWith Founder

Differentiating Amongst Differentiating Amongst Key Managers Key Managers

Reluctance To Establish Reluctance To Establish Formal ControlsFormal Controls

Fear Of ChangeFear Of Change

SuccessionSuccessionObstacles: EmployeesObstacles: Employees

Source: Family Business Experts, www.familybusinessexperts.com

Royalty-Free/CORBIS

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Customers & SuppliersCustomers & Suppliers

Dependence On Dependence On FounderFounder

Trust/Confidence In Trust/Confidence In Potential Successor Potential Successor

SuccessionSuccessionObstacles: OutsidersObstacles: Outsiders

Source: Family Business Experts, www.familybusinessexperts.com

Royalty-Free/CORBIS

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Causes OfCauses OfSuccession Family Leader:Succession Family Leader:

Sudden DepartureSudden DepartureoDiesDies

oBecomes IncapacitatedBecomes Incapacitated

Planned DeparturePlanned DepartureoLeaves CompanyLeaves Company

oRetiresRetiresRoyalty-Free/CORBIS/

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Family Leader:Family Leader:Replacement OptionsReplacement Options

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Selling To FamilySelling To FamilyMembers- Advantages Members- Advantages Stays In FamilyStays In Family

Source Of Family Source Of Family EmploymentEmployment

Stature MaintainedStature Maintained

Owner = RelaxOwner = Relax

Pleasure Of SuccessPleasure Of Success

Strengthen FamilyStrengthen Family

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Assured IncomeAssured Income

Lack Of WorryLack Of Worry

Consult?Consult?

Release TensionRelease Tension

Relief Of ResponsibilityRelief Of Responsibility

Selling ToSelling ToOutsiders- Advantages Outsiders- Advantages

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Loss Of Family IDLoss Of Family ID

Loss = SadnessLoss = Sadness

Selling ToSelling ToOutsiders- Disadvantages Outsiders- Disadvantages

Greg Kuchik/Getty Images

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Ease TheEase TheTransition For OwnerTransition For Owner

Broaden FocusBroaden Focus

Devote Time To:Devote Time To:

oHobbiesHobbies

oOther GroupsOther Groups

Gradually Turn Over Gradually Turn Over

ControlControl

Doug Menuez/Getty Images

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Inc. 500Inc. 500CEOs’ Net WorthCEOs’ Net Worth

0%

10%

20%

30%

40%

50%

60%

<$1Million

$1-5Million

$5-10Million

$10-25Million

$25Million+

Source: Inc. Magazine, “Compensation”, November 2004.

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INC. 500 CEOs’INC. 500 CEOs’ Take-Home PayTake-Home Pay

0% 5% 10% 15% 20% 25% 30% 35% 40%

<$100,000

$100-250 K

$250-500 K

$500-750 K

$750-1 M

$1-3 M

$3 M+

Source: Inc. Magazine, “Compensation”, November 2004.

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Financial PlanningFinancial PlanningTax - Annual Conferences Tax - Annual Conferences

With Tax AccountantWith Tax AccountantEstate – Transfer Of Assets At Estate – Transfer Of Assets At

DeathDeatho PerpetuationPerpetuationo LiquidityLiquidity

Business StandpointBusiness Standpointo Reduce Cash StrainReduce Cash Straino Maintain Beneficiaries’ InterestMaintain Beneficiaries’ Interesto Smooth TransitionSmooth Transition

Keith Brofsky/Getty Images

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Estate Planning TechniquesEstate Planning TechniquesGiftsGiftsStock SalesStock SalesLiving TrustsLiving TrustsFamily Limited PartnershipsFamily Limited Partnerships

oMinimize CostMinimize Cost

oRetain ControlRetain ControlBuy/Sell AgreementBuy/Sell Agreement

PhotoLink/Getty Images

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Business ValuationBusiness ValuationComparablesComparables

Earnings Earnings CapitalizationCapitalization

Book ValueBook Value