What is the state of family business today?
Family businesses remain the lifeblood of the U.S. economy, accounting for more than half of the U.S. gross domestic product and generating nearly 60 percent of the country’s employment. Family businesses have historically been optimistic about their futures and our survey demonstrates the same. While the economy is shaken, family businesses are often in a better position than publicly held companies to survive and thrive during difficult times.
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Why is Laird Norton Tyee, a wealth management firm, talking about family businesses?
We want to spark a new conversation among family businesses by constantly providing the best information available, encouraging family businesses to share best practices and committing to their ongoing success. We’ve worked with family members of family businesses for more than 40 years and hope to work with them for many more.
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What are the top challenges that family businesses face today?
As our survey shows, family business leaders generally have a strong desire to keep the business within the family, but they have done little to prepare for transitioning that business to the next generation. We also found that many business-owning families have a significant portion of their personal net worth tied to the family business, potentially causing family members to delay retirement and posing a significant threat to retirement savings if the business were to suffer. These personal financial pressures can burden business decisions.
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Why is succession planning so important?
Succession planning goes far beyond choosing the next company leader. It includes identifying those with the skills and capabilities to lead a business, training them to lead early so they are prepared from their first day in the top role, and developing trust throughout the entire company that the business will continue to prosper when changes happen. In addition to the succession plan, it is critical for senior generation leaders to prepare themselves for the next chapter in their lives by diversifying their income sources, planning where they will focus the energy previously put into the business and establishing estate plans that help support future generations.
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What are the critical elements in developing a succession plan in a family business?
Succession planning is complex. A good way to start the process is to begin with a family conversation. Setting agreed-upon goals and clearly defining the vision for the future is often the hardest, but most important, part. The elements of a succession plan are individual to each family business. One common aspect of a sound succession plan includes clearly outlining the roles of ownership, management and family. They can also detail the education, knowledge and professional experience required of a family member to enter and rise up through the business, or can describe how family members can exit the business and how the next generation can buy ownership stakes in the firm.
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How do family goals and wishes affect a family’s business?
In running a family business, the leader must consider the needs of several stakeholders including ownership, management and his or her family. The desires of these groups are often not aligned and a common belief is that the interests of a family are generally in conflict with that of a business. Subsequently, it’s thought that the business leader should not let family influence interfere with business decisions. However, our study found that incorporating the goals and desires of the family is an important part of running a family business and it can actually boost a business’s bottom line.
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What can a family business learn from this survey?
One of the most important things to learn is that considering the needs and goals of the family is not only important for the family’s well-being, but also can increase the success of the business. Owners, management and family members, who may not even own part of the business, all have influence and unique concerns. Our study shows that balancing the needs of each of these groups can be profitable for the business.
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Laird Norton Tyee Family Business Survey 2008
© 2008 Laird Norton Tyee