In “The Psychology of Money,” Morgan Housel challenges the conventional view of financial decisions being purely data-driven. He emphasizes the role of luck, risk, and adaptability in financial outcomes. His lessons include the importance of recognizing risk and luck rather than skill, focusing on broader patterns rather than individual cases, and maintaining adaptability in long-term financial planning. This analysis provides a fresh perspective on managing family businesses and reshaping financial decision-making.
A recent Wall Street Journal article highlighted the trend of newly-public companies reverting back to private ownership after a very short time in public hands. Among the boomerang IPOs mentioned in the article was that of backyard grill maker Weber. With the advent of grilling season, we were curious about Weber’s experience in the public markets and any lessons that family business directors might be able to draw from the tale. Among the lessons available for family business directors from the tale, we will focus on two for this post.
Last week, Southwest Airlines experienced significant disruptions and canceled thousands of flights following a winter blast smacking a large swath of the country. Underinvestment in system-critical operations was a key culprit, and it reminded me of the “Invest or Not to Invest” decision that faces family businesses. What investment decisions could Southwest have made before the crisis? And, what about your business? How do you make rational investment and capital expenditure decisions? Do you acquire a new business or modernize? What is a good investment?
In this post, we discuss two key areas to address these questions: how to identify investments available to your business and how to evaluate your available investment opportunities.
And, if you traveled during the storm, we hope you made it to your destination and home.
Many enterprising families have January 1, 2026, circled on their calendars. Why? Because the individual estate tax exemption reverts to $6 million (give or take, depending on inflation) in 2026 from its current level of $12 million. As a result, many estates that are not currently large enough to be taxable will become so, and the effective tax rate for all estates will increase. Has your family considered a Family Limited Partnership? The “magic” of the FLP is the ability to transfer assets to heirs, and out of taxable estates, at discounted values. The IRS is skeptical of many FLP planning strategies, noting that audit challenges may become more frequent as the IRS puts its new $80 billion enforcement budget to work. While the valuation discounts applicable to FLPs may seem like estate planning magic, there really is no sleight-of-hand involved. Instead, valuation discounts reflect economic reality. We talk more about this in this week’s post.
Kicking off with the inspired lyrics, “Down dooby doo down down,” Neil Sedaka assured legions of teenage girls in 1962 that “Breaking Up Is Hard to Do.” Sixty years later, the actions of the Follett family are telling family business directors that maybe breaking up is not so hard after all. In this week’s post, we explore the question “Why do different businesses sometimes need different owners?” by examining the Follet family’s recent sale of each of its three operating divisions to a different buyer.
My family and I have been out at the Broadmoor in Colorado Springs for a work conference. Since we were going to a nice resort and conference center, we decided to parlay the weekend into a family business meeting. The meaning of the family business impacts the three key legs of the family business stool: dividend policy, capital investment, and financing decisions. In this post, we detail how we thought about each of the three legs.
The intersection of family and business generates a unique set of questions for family business directors. We’ve culled through our years of experience working with family businesses of every shape and size to identify the questions that are most likely to trigger sleepless nights for directors. Excerpted from our recent book, The 12 Questions That Keep Family Business Directors Awake at Night, we address this week the question, “Should We Diversify?”
For public companies, today’s almost endless supply of cheap capital (as evidenced by the proliferation of special purpose acquisition companies, or SPACs) is a boon. The low cost of capital makes it easier to justify investment opportunities financially, and investors are willing to provide capital in search of higher returns. For many family businesses, however, the era of cheap capital may not be an unqualified good.
Two Developments That Will Affect Family Businesses
The rise of the family office as a source of investment capital for other businesses is the best evidence that families are comfortable looking outside the family business to generate returns on family capital. Just as liquid naturally flows to the lowest point, capital naturally flows to its highest and best use. The viscosity of family capital is high, so it may take longer to move, but it eventually will. In the context of this broader trend, we propose three things for family business directors to begin thinking about.
As recounted in the Harvard Business Review article entitled “What You Can Learn from Family Business,” an academic study of family-controlled and non-family public companies found that debt constituted 37% of the capital of family-run businesses, compared 47% for the non-family companies. This finding is generally consistent with our experience working with family businesses of all sizes. In this post, we consider why family-run businesses might be a bit more debt-shy than their non-family peers.
This post is the second of four installments from our Corporate Finance in 30 Minutes whitepaper. In this series of posts, we walk through the three key decisions of capital structure, capital budgeting, and dividend policy to assist family business directors and shareholders without a finance background to make relevant and meaningful contributions to the most consequential financial decisions all companies must make. This week, we focus on capital structure.
Stewarding a multi-generation family business is a privilege that comes with certain responsibilities, and each family business faces a unique set of challenges at any given time. For some, shareholder engagement is not currently an issue, but establishing a workable management accountability program is. For others, dividend policy is easy, while next gen development weighs heavily. Through our family business advisory services practice, we work with successful families facing issues like these every day.