Category

Planning & Strategy

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December 12, 2022 Special Topics

Is Your Family Business Ready for the Next Recession?

A Look Ahead to 2023

As we begin to put a bow on 2022 and turn our attention to 2023, we suspect that the dreaded “R word” is on the mind of many of our readers as they contemplate the myriad challenges and obstacles their businesses will face in 2023. As a family business owner or director, now is the time to think critically about how your family business is positioned for a potential economic slowdown.  This post offers a few practical steps family business owners and directors can take to ensure their business continues to thrive even if Santa brings us a recession this year.

November 28, 2022 Dividend Policy Shareholder Engagement

Double Down or Cash Out: The Reinvestment or Distribution Decision

I recently got back from the AICPA’s Forensic and Valuation Services conference in Las Vegas.  While I came back richer in experience and CPE credit, the green felt of the blackjack table was less kind to my wallet. Matching your family shareholders’ growth objectives with their relative risk tolerance is a key directive for family business directors and one that is tied directly to what your family business means to you.  We highlight two corollary questions relating to growth, risk, and business meaning: investing decisions and distribution policy.

November 21, 2022 Special Topics

Something to Chew on This Thanksgiving

We have traditionally advised you about what not to talk about at the Thanksgiving dinner table, but this year, we thought we would highlight a more positive family business conversation that you might want to have with your family shareholders.

November 14, 2022 Special Topics

Review of Key Economic Indicators for Family Businesses

With economic data for 3Q22 beginning to trickle in, we look at a few key trends that developed during the quarter.  The tale of the tape in the third quarter was the same as it has been for virtually all of 2022—volatile equity markets, ongoing inflationary concerns, and rising interest rates.  In this post, we provide a concise and unbiased look at some of the manifested trends.

November 7, 2022 Special Topics Taxes

What Do the Midterm Elections Mean for You & Your Family Business?

The 2022 midterm elections are here, and, as usual, one of the most significant differences between Democrats and Republicans is tax policy. While voters are contemplating significant issues ranging from inflation, immigration, and gun control, the election outcome will also influence which tax priorities Democratic and Republican lawmakers will pursue over the next few years.

October 31, 2022

Unfriended? Long-Term Planning and Facebook’s Stock Collapse

Meta Platforms (NASDAQ: META), formerly known as “Facebook,” recently released its third-quarter earnings and guidance for 2023. Let’s just say the market was less than pleased. Meta’s stock fell over 20% in after-hours trading, which is down over 65% year-to-date. But so what? We think the current sell-off presents two lessons to family businesses: Maintain a long-term perspective even in rough weather, and understand the season your business is in.

October 17, 2022 Capital Budgeting

Storms Ahead? Best Practices for Forecasting Performance

How do you approach your family business budget? Do you ask your managers to “reach” or to create targets you expect to meet? Do you measure your forecasting accuracy? What is your process? In our post this week we share three forecast reminders that may help you make better budgets: Measure yourself regularly, remember the law of averages, and adapt your roadmaps when needed.

October 10, 2022

From Antler Motel to the House of Representatives

Clarene Law was a mother and a hotel bookkeeper in Wyoming’s Jackson Hole valley in the 1960s.  After hearing the Antler Motel was for sale, she borrowed money from her parents and put a down payment on the $125,000 asking price. Fast forward some years later and what started as a little-known town blossomed into a luxurious year-round hiking and skiing destination for visitors all over the country. While right place, right time played a part, it does not tell the whole story of how Clarene Law became one of the best-known entrepreneurs in Jackson Hole. Inspired by her story and the family business she built, we highlight three themes that can help build your family business: growth, diversification, and family business leverage. 

October 3, 2022 Special Topics

Private Equity Wants Your Family Business

For many family business leaders we talk with, “private equity” is a four-letter word. In this post, we identify a couple of potential “pros” for private equity that family business directors should be aware of and also confirm a couple of the well-known “cons” to accepting private equity investment.

September 26, 2022 M&A Special Topics

Considerations in Merger Transactions

This week we welcome Nick Heinz, ASA to the Family Business Director Blog. Nick is a Senior Vice President at Mercer Capital and a member of the firm’s Transaction Advisory team. This article originally appeared as part of an ongoing series, Buy-Side Considerations, from Mercer Capital’s Transaction Advisory team and highlights key considerations for family businesses looking to engage in a merger.

September 19, 2022 Special Topics

What’s Lurking on Your Family’s Balance Sheet?

Any good CFO or Controller knows what’s on their business’ balance sheet, including cash, inventory, property, and debt. But for enterprising families, it is often necessary to go one step further and ask what’s on the family’s balance sheet? It may be your great uncle’s antique car collection, a ski chalet shared by you and your family, or rare art that adorns your office. Whatever it may be, there are three things we think you should consider regarding your more esoteric family balance sheet items: valuation, diversification, and allocation.

September 13, 2022 Special Topics Taxes

What Should We Do About Estate Taxes?

Most family business owners desire to provide financially for their family. Due to this, one of the widespread concerns of these owners is the ability to transfer ownership of the family business to the next generation in the most tax-efficient way. In this post, we explain the importance of understanding the concept of fair market value when evaluating an estate planning strategy and some potential next steps to take to ensure the estate plan accomplishes the desired goals.

August 29, 2022 Special Topics

What We’ve Been Reading

How to get a non-family CEO and a family ownership team on the same page regarding financial goals, dealing with a family member who needs to step down from leadership, and the turnaround story of family-owned Radio Flyer are some of what we’ve been reading about as fall approaches. In this week’s post, we share a few interesting articles you and your family board members may enjoy.

August 22, 2022 Performance Measurement Special Topics

Review of Key Economic Indicators for Family Businesses

With economic data for 2Q22 trickling in, we take a look at a few key trends that developed during the quarter.  Volatile equity markets, ongoing inflationary concerns, and rising interest rates drove headlines in the second quarter of the year. The information in this post provides a concise and unbiased look at some of the trends that manifested themselves during the quarter.

August 15, 2022 Shareholder Engagement

Stock Buybacks and Family Businesses

Stock buybacks were in the news last week as the newly-passed Inflation Reduction Act includes a provision levying a 1% excise tax on share repurchases by public companies. As we’ve noted in previous posts, we question Congress’s grasp of the basic economics of a stock buyback, but Congress is not our focus today. 

Privately held family businesses are exempt from the tax, but directors need to understand the real economics of stock buybacks (or, in the case of family businesses, shareholder redemptions).

August 8, 2022

These Loafers Are Made for Walkin’

Italian Shoemaker, Tod's, Opts Out of the Public Markets

Last week, Tod’s – the Italian maker of luxury shoes – announced plans by the founding Della Valle family to take the company private. We discuss the motive behind this transaction and two obligations of all family businesses (public or not) that we believe this transaction highlights.

August 1, 2022 Shareholder Engagement Special Topics

How to Have “The Talk” With Your Family Directors

In this post, we discuss three simple rules that can help promote impactful and productive dialogue between parents, children, and different generations in your family business: big picture first, be transparent, and remember priorities. Having these transitional and educational conversations is essential for family businesses.

June 27, 2022

Is Your Family Business Worthy of Its Name?

Unlike McDonald’s franchisees, directors and managers of family businesses are not required to undergo a renewal procedure to maintain access to the family’s human and financial resources. However, pretending that you had to is a good exercise for managers and directors. What evidence do you have to support your decision to continue managing the family’s wealth? Do you have a regular reporting procedure in place that takes those elements into account? In this week’s blog post, we provide some broad elements that should be considered for any stewardship reporting model.

June 13, 2022

Bear Market Silver Lining? An Estate Planning Opportunity

The risk of a recession is growing, and inflation in May reached a new four-decade high. Companies and consumers alike are feeling the pinch and battening down the hatches in anticipation of stormy weather, with markets reflecting less-than-optimistic expectations. Stocks are in the red outside of the energy sector. Lower broad market pricing translates to lower family business valuations. So, what? A market downturn, on the other hand, presents an opportunity for family businesses planning long-term intrafamily transfers and gifting plans to significantly reduce their estate and gift tax exposure. We’ll show you how in this post.

June 6, 2022

Recession, Expectations & Value

Corporate executives are considering how a recession would affect their businesses due to the current uncertainty in the macroeconomic environment. How will your family business fare in the event of a recession, and how are expectations for the future affecting the value of your family business right now? We discuss this impact in terms of value in this week’s blog post by categorizing expectations into three primary categories: cash flow, risk & return, and growth.

May 9, 2022

Your Family’s Guide for the Next 100 Years

How your family business thinks about success is important. James Hughes, author of Family Wealth: Keeping It in the Family poses a question early on in his book: Can a family successfully preserve its wealth for more than one hundred years or for at least four generations? It’s a compelling question and a compelling book.

Hughes is now a retired sixth-generation counselor-at-law, prolific author, and renowned multi-generation family meeting facilitator. He has advised numerous wealthy families on how to maintain and grow their wealth over time. Hughes views “shirtsleeves to shirtsleeves in three generations” plaguing family businesses not as destiny but as a cycle family businesses can overcome with thoughtful practices and patience over many years. In this week’s post, we review his very insightful and helpful book.

May 2, 2022

Three Reasons to Hold Cash on the Family Business Balance Sheet

For one weekend a year, the spotlight of the financial world shifts from New York to Nebraska. The annual meeting of the Berkshire Hathaway company has developed a cult following among shareholders and financial journalists alike. A compound annual return of 20% over 55 years (!) will do that for you.

The consummate value investor, Warren Buffett, attributed the growing cash stockpile to an absence of compelling investment opportunities. Better to hold cash than make bad investments, after all.  Market volatility in the early months of 2022 did loosen the purse strings a bit as Berkshire made a large acquisition and built large positions in three publicly traded companies. All told, the first quarter investing activity drew cash down to approximately $105 billion, which is still enough to cover payroll for a while.

Mr. Buffett certainly doesn’t need us to remind him of the perils of “lazy capital” on the corporate balance sheet – the yearend cash stash represented approximately 20% of Berkshire’s overall market capitalization. Giving Mr. Buffett the benefit of the doubt (which he has probably earned at this point in his career), are there any good reasons for family businesses to hold some cash in reserve? In this week’s post, we share our view of the three potential benefits to keeping some cash on the balance sheet.

April 25, 2022

How to Approach a Target and Perform Initial Due Diligence

This post originally appeared as an article in a recent Mercer Capital publication, The Transaction Advisory Update, regarding buy-side considerations in transactions for middle market companies. In this post, we summarize some practical considerations for approaching and vetting an identified target.

March 28, 2022

Nine Characteristics of Successful Family Wealth Plans

Recently we had the opportunity to attend (virtually) the Johns Hopkins All Children’s Foundation 24th Annual Estate, Tax, Legal & Financial Planning Seminar.  This year’s keynote speaker was Pamela Lucina, Chief Fiduciary Officer and head of the Trust & Advisory practice for Northern Trust Wealth Management, one of the country’s largest trust companies.  Her keynote presentation highlighted the characteristics of successful families and provided practical strategies to avoid mistakes commonly seen in the administration of multigenerational wealth plans and trust structures. In this week’s post, we summarize Ms. Lucina’s nine key observations.