2-1 Family-Owned Business Organizing/Operating Family-Owned Business Organizing/Operating...
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2-1
Family-Owned Family-Owned BusinessBusiness
Organizing/Operating Family-Owned Organizing/Operating Family-Owned BusinessBusiness
Family Relationships & BusinessFamily Relationships & Business
Preparing For Succession & The Preparing For Succession & The Next GenerationNext Generation
Tax/Estate PlanningTax/Estate Planning
Ch
apte
r
22
2-2McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Some FactsSome Facts
Around 90% of Around 90% of allall US companies are US companies are family ownedfamily ownedMost have fewer than 20 employeesMost have fewer than 20 employees
Only 30% survive to the second Only 30% survive to the second generation of family membersgeneration of family members
46 million Americans work in home 46 million Americans work in home businessesbusinessesFamily businesses needs management Family businesses needs management tootoo
2-3McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
IssuesIssues
EmotionsEmotionsInteraction of business and household Interaction of business and household
issuesissuesReputationReputation
A criminal act by a single family A criminal act by a single family member may damage the whole member may damage the whole family’s businessfamily’s business
2-4McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Family & BusinessFamily & BusinessWritten Mission StatementWritten Mission Statement
Include Children Include Children In DecisionsIn Decisions
Family DiscussionsFamily Discussions
2-5McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Family Mission StatementFamily Mission Statement
Start From Trust/OpennessStart From Trust/OpennessUnanimous Agreement On Values Unanimous Agreement On Values
& Vision& VisionCopies To AllCopies To AllAvoid:Avoid:
Rushing FamilyRushing FamilyFavoring An AgendaFavoring An AgendaForgetting PurposeForgetting Purpose
Photodisc
2-6McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Trends In Family BusinessTrends In Family Business
Kids Start Business & Get Capital Kids Start Business & Get Capital From ParentsFrom Parents
Parent Given Executive Parent Given Executive PositionPosition
Spouses Working Spouses Working Together- Service Together- Service Businesses With TechnologyBusinesses With Technology
Needs Clear Chain Of CommandNeeds Clear Chain Of Command
Royalty-Free/CORBIS
2-7McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Tips For Spousal OwnershipTips For Spousal Ownership
Monica Lau/Getty Images
2-8McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Daughters ConsideringDaughters ConsideringSuccession To Family BusinessSuccession To Family Business
♀Express InterestExpress Interest
♀Outside ExperienceOutside Experience
♀Learn From Learn From
SeniorsSeniors
♀Be SensitiveBe Sensitive
♀Get InvolvedGet Involved
♀Meet WomenMeet Women
♀Define YourselfDefine Yourself
♀Develop A VisionDevelop A Vision
Royalty-Free/CORBIS
30% of businesses are now owned by women
2-9McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
SuccessfulSuccessfulFamily InteractionFamily Interaction
Founder = HeadFounder = HeadSome Family In High Some Family In High PositionsPositions
Incur “Sense Of Ownership”Incur “Sense Of Ownership”Deal With IncompetentsDeal With IncompetentsCompensateCompensateRecognize LimitationsRecognize Limitations
2-10McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Steps In DivorceSteps In Divorce
1.1. Business AppraisalBusiness Appraisal
2.2. Negotiate BuyoutNegotiate Buyout
3.3. Decide What To Do Decide What To Do
With StockWith Stock
4.4. Seek Tax ProfessionalsSeek Tax Professionals
2-11McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Family Culture & BusinessFamily Culture & Business
Large FamiliesLarge FamiliesStay-At-Home MomStay-At-Home MomDevelop Hobbies As Develop Hobbies As
BusinessBusinessWorking Moms Establish BusinessWorking Moms Establish Business
Economy More DifficultEconomy More DifficultNeed Additional IncomeNeed Additional IncomeLarge Business No Longer Family-Large Business No Longer Family-
FriendlyFriendly
Keith Brofsky/Getty Images
2-12McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Family ResourcesFamily ResourcesBorrow CapitalBorrow Capital
Sell StockSell Stock
Selling Personal AssetsSelling Personal Assets
OtherOther
PhotoLink/Getty Images
2-13McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Next Generation PreparationNext Generation Preparation
Start Part/Full-Time Start Part/Full-Time JobJob
Start Entry/Higher-Start Entry/Higher-Level Position In Level Position In BusinessBusiness
Outside Outside ExperienceExperience
Rotate JobsRotate Jobs
Earn PromotionsEarn Promotions
Teaching/TrainingTeaching/Training
Leave Work At Leave Work At
WorkWork
If Prepared, Give If Prepared, Give
ResponsibilityResponsibility
2-14McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Succession PlanningSuccession PlanningPlan Early & CarefullyPlan Early & Carefully
Groom SuccessorGroom Successor
http://www.businesslaw.govDoug Menuez/Getty Images
2-15McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Succession ProblemsSuccession ProblemsTreat Treat AllAll Children Fairly Children FairlyNonfamily Employees?Nonfamily Employees?Family Concerns:Family Concerns:
CommunicationCommunicationConflictConflictEstate TaxesEstate Taxes
More Than 1 Child SuccessionMore Than 1 Child Succession
2-16McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Succession PlanningSuccession PlanningObstacles: 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 To Jealousy/ Rivalry To
SuccessorSuccessorEffect On SpouseEffect On Spouse
Founder’s Fiduciary Founder’s Fiduciary Responsibility To Responsibility To Nonfamily EmployeesNonfamily Employees
Friends Continue To Friends Continue To WorkWork
Fear Of DeathFear Of DeathReluctance To Release Reluctance To Release
PowerPowerCoaching Skills?Coaching Skills?
Source: Family Business Experts, www.familybusinessexperts.com
2-17McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Spouse’s Role In BusinessSpouse’s Role In BusinessReluctance To Discuss Reluctance To Discuss Future Beyond Parents’ Future Beyond Parents’ LifeLife
Fairness vs. FavoritismFairness vs. FavoritismFear Of Parents’ DeathFear Of Parents’ Death
Succession PlanningSuccession PlanningObstacles: FamilyObstacles: Family
Source: Family Business Experts, www.familybusinessexperts.com
Jack Hollingsworth/Getty Images
2-18McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Personal Relationship With Personal Relationship With FounderFounder
Differentiating Amongst Differentiating Amongst Key ManagersKey Managers
Reluctance To Establish Formal Reluctance To Establish Formal ControlsControls
Fear Of ChangeFear Of Change
Succession PlanningSuccession PlanningObstacles: EmployeesObstacles: Employees
Source: Family Business Experts, www.familybusinessexperts.com
Royalty-Free/CORBIS
2-19McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Customers & SuppliersCustomers & Suppliers
Dependence On FounderDependence On Founder
Trust/Confidence In Trust/Confidence In Potential SuccessorPotential Successor
Succession PlanningSuccession PlanningObstacles: OutsidersObstacles: Outsiders
Source: Family Business Experts, www.familybusinessexperts.com
Royalty-Free/CORBIS
2-20McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Causes Of SuccessionCauses Of SuccessionFamily Leader:Family Leader:
Sudden DepartureSudden DepartureDiesDiesBecomes IncapacitatedBecomes Incapacitated
Planned DeparturePlanned DepartureLeaves CompanyLeaves CompanyRetiresRetires
Royalty-Free/CORBIS\
2-21McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Family Leader:Family Leader:Replacement OptionsReplacement Options
2-22McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Selling To FamilySelling To FamilyMembers- Advantages Members- Advantages
Stays In FamilyStays In FamilySource Of Family EmploymentSource Of Family EmploymentStature MaintainedStature MaintainedOwner = RelaxOwner = RelaxPleasure Of SuccessPleasure Of SuccessStrengthen FamilyStrengthen Family
2-23McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Assured IncomeAssured Income
Lack Of WorryLack Of Worry
Consult?Consult?
Release TensionRelease Tension
Relief Of ResponsibilityRelief Of Responsibility
Selling ToSelling ToOutsiders- Advantages Outsiders- Advantages
2-24McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Loss Of Family IDLoss Of Family ID
Loss = SadnessLoss = Sadness
Selling ToSelling ToOutsiders- Disadvantages Outsiders- Disadvantages
Greg Kuchik/Getty Images
2-25McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Ease TheEase TheTransition For OwnerTransition For Owner
Broaden FocusBroaden Focus
Devote Time To:Devote Time To:HobbiesHobbies
Other GroupsOther Groups
Gradually Turn Over ControlGradually Turn Over Control
Doug Menuez/Getty Images
2-26McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Estate Planning IssuesEstate Planning IssuesMinimize TaxesMinimize Taxes
Retain ControlRetain Control
Maintain Business Maintain Business FlexibilityFlexibility
Steven Cole/Getty Images
2-27McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Inc. 500 CEOs’ Net WorthInc. 500 CEOs’ Net Worth
0%
10%
20%
30%
40%
50%
60%
<$1Million
$1-5Million
$5-10Million
$10-25Million
$25Million+
Source: Inc. Magazine, “Compensation”, November 2004.
2-28McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
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.
2-29McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Financial PlanningFinancial PlanningTax - Annual Conferences With Tax Tax - Annual Conferences With Tax
AccountantAccountantEstate – Transfer Of Assets At DeathEstate – Transfer Of Assets At Death
PerpetuationPerpetuationLiquidityLiquidity
Business StandpointBusiness StandpointReduce Cash StrainReduce Cash StrainMaintain Beneficiaries’ InterestMaintain Beneficiaries’ InterestSmooth TransitionSmooth Transition
Keith Brofsky/Getty Images
2-30McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Estate Planning TechniquesEstate Planning Techniques
GiftsGiftsStock SalesStock SalesLiving TrustsLiving TrustsFamily Limited PartnershipsFamily Limited Partnerships
Minimize CostMinimize CostRetain ControlRetain Control
Buy/Sell AgreementBuy/Sell Agreement
PhotoLink/Getty Images
2-31McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Business ValuationBusiness ValuationComparablesComparables
Earnings Earnings CapitalizationCapitalization
Book ValueBook Value