What's so special about family business? Business is business is business, right? Isn't any business better than no business -- no matter the size, family-held or not? Do family businesses impact a local economy?
In every measure that's significant -- from return on assets to profitability and from sales growth to return on equity -- family firms outperform non-family firms in the long run. Communities interested in preserving and growing their economies need to know that the engine of job creation and prosperity begins with family-owned firms. They play a vital part in any sustainable economy.
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On a recent post titled Family Business Challenge: Attitude of Entitlement, I asked people to share what they do in their family to avoid an attitude of entitlement and also what and how they are teaching the next generation to “Prepare” and to “Protect.” The response was great and some wonderful tips and best practices were shared.
One of those responses came from Phil Clemens, CEO of Clemens Family Corporation (i.e. Hatfield Quality Meats) and a regular reader of The Exuberant Accountant. I did a feature post on Phil last April which you can read by clicking this link. Phil often speaks and coaches on family business issues and he is someone I respect tremendously. With his permission, I share some wonderful insights from him and the Clemens Family.
Some of the things we do are:
Continue reading "Family Business Challenge: Attitude of Entitlement (Follow-Up)" »
"Someday this company will be yours." This statement may sound like an innocent promise from a well-meaning parent, but it can wreak havoc within a family business. When children grow up believing that no matter how they act, the business will be theirs to run, an entitlement attitude often flourishes. Furthermore, once that seed is planted, it's very difficult to stop it. As I have written before, it is difficult to escape a culture of entitlement and that entitlement is very effective at strangling the growth of an otherwise vibrant family business.
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I get this question from time to time and my response is always the same. There are two good reasons for firing family members: Reason number 1—they have failed to fulfill their roles and responsibilities to the business. Reason number 2—see Reason number 1. It is no surprise the response I always get back is, “I just can’t do that.”
Business advisor: "The problem with your business is your son — he's incompetent and destructive. You need to fire him right away."
Business owner: "I know it, but there is just one problem. I have to sleep with his mother."
Continue reading "Help, I Want to Fire a Family Member from the Business" »
Statistics reveal that only 12% of family businesses make it to the third generation and even less to the next. Why? Is it because of poor service or bad products? Ineffective operations? Probably not. It is more likely the result of poor family relationships and a lack of participatory leadership. This is according to Dr. Stephen R. Treat of the Council for Relationships during his recent presentation at the S. Dale High Center for Family Business.
His focus was on unique challenges that family relations play in family businesses. These family relationships (both healthy and unhealthy) are the single biggest reason why a family business survives or fails.
Continue reading "Family Business: The Power of Participatory Leadership" »
What happens to your company if you or your business partner unexpectedly dies, becomes incapacitated, or goes through a divorce? At death, shares of a business form part of an estate and may be left to one's spouse, children, or other heirs through the owner's last will and testament. With divorce, shares form marital property that could be divided such that an ex-spouse might become a shareholder.
Other types of disruptions such as medical incapacity or financial circumstances may force a shareholder to transfer shares to third parties. In addition, general disagreements between business partners may cause one or more of the owners to separate from the business and transfer or sell their ownership interests.
Continue reading "Shareholder Agreements: Essential Succession Management Tool" »
One of the biggest challenges of a family business is the issue of entitlement. We have seen it many times. Junior is given the title of vice president without ever paying his dues. Members of the cousin generation (third generation) have only known the business as successful and expect it to continue and for the business to just be handed over to them. During a recent session at the S. Dale High Center for Family Business, a great presentation was made about escaping a culture of entitlement.
Tom Wolf, Chairman and CEO of the Wolf Organization, a six generation family-owned building materials business based in York, PA, presented how you avoid this entitlement problem.
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In my first post Family Business Owners and the Estate Tax - Part 1, I discussed the not-so-probable repeal of the estate tax in 2010. As a recap, the administration has proposed that the 2009 rates and exemption amount be extended through 2010 (top rate of 45% and exemption amount of $3.5 million). This means it is likely that the estate tax will not have a vacation in 2010, as originally legislated. In addition to the "repeal of the repeal," the current administration has also proposed some significant changes to certain aspects of estate planning tools used very frequently by family owned business owners.
Here is a quick recap of two main proposed changes:
Continue reading "Family Business Owners and the Estate Tax - Part 2" »
For many entrepreneurs and family business owners, the legacy and wealth they have worked so hard to build has long been threatened by the federal estate tax. Without proper planning, families can see up to 45% of their assets go to Uncle Sam rather than their intended beneficiaries (in some cases, certain assets can be subject to multiple levels of taxation totaling almost 75% once you consider federal estate and income tax as well as state inheritance taxes).
During the Bush administration, the federal estate tax was repealed starting in 2010, but only for one year, and is set to return in 2011 (Economic Growth and Tax Relief Reconciliation Act of 2001). Time and time again I am asked by my clients whether I believe the repeal will actually take place in 2010. Additionally, there are changes to various aspects of estate taxation that are being considered by the current administration.
Continue reading "Family Business Owners and the Estate Tax - Part 1" »