Corporate Finance & Planning Insights for Multi-Generational Family Businesses
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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
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.
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.
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.
This week, we welcome Tim Lee to the Family Business Director blog. This post originally appeared as an article in a recent Mercer Capital publication, The Transaction Advisory Update. Many family businesses will find the post interesting because it provides touch points and practicalities for identifying viable merger and acquisition targets and assessing strategic fit.
While there are likely dozens of lessons to be learned from Publix, family business owners and leaders should consider three areas key to Publix’s success over the last 90 years: long-term planning, smart diversification, and strong family culture.
Barring a change in the economic backdrop, the availability of debt financing for most family businesses in 2022 should be good; however, the cost of borrowing probably will rise in 2022. Market participants are highly certain the Fed will raise short-term policy rates to address high inflation that massive growth in monetary aggregates since March 2020 unleashed on financial markets initially and now the broader economy.
As 2022 kicks off, tax policy largely remains unchanged from a year ago. President Biden’s Build Back Better Act went through numerous iterations over the year and was politicked down from a headline program cost of $3.5 trillion to $1.7 trillion before ultimately being kiboshed by Senator Joe Manchin in late December.
But where does that leave estate planners and family businesses? There are three things estate planners and business advisors need to keep top of mind regarding tax policy in 2022.
Our family business clients naturally want to know what their business is worth today. But an even better question asked by many of them is what they can do today to make their family business more valuable tomorrow. While the specifics of value creation are unique to each business, we like to use a common framework to help our clients identify pathways for creating value.
We present key elements of this framework in this week’s blog post, to get your family business ready for 2022.
For most of us, Thanksgiving is a time to disregard normal dietary restraint in the company of extended family members that one rarely sees. For some enterprising families, however, Thanksgiving quickly devolves from a Rockwellian family gathering to a Costanza-style airing of grievances. So, in the holiday spirit, we offer this list of the top ten questions not to ask at Thanksgiving dinner. If you have trouble distinguishing between the board room and the dining room, this list is for you.
Numerous changes lurk in the current reconciliation bill snaking its way through Congress and it could have major ramifications to the estate plans you worked up just a few years ago.
In this post we briefly touch on planning vehicles and structures as well as valuation tools currently being debated in the reconciliation bill and why they are important to many family business owners and advisors.
Don’t read this book if you run a family business that is flush with cash, growing like a weed, regularly enjoys drama free family dinners, has their succession plan for your grandchildren in order, and do not foresee any disruption to your business over the next few generations.
Assuming the above does not describe you perfectly, the Harvard Business Review | Family Business Handbook by Josh Baron and Rob Lachenauer is a comprehensive and useful tool for anyone involved with or working in their family business.
It was “leaked” last week that the Biden administration is planning to nearly double the federal capital gains tax rate on taxpayers earning more than $1 million from 20% to 39.6%. In states with high taxes, the combined blended rate could top 50%. This week we discuss the capital gains tax and provide some helpful reminders for family business owners.
Late last month, Family Capital released its third annual ranking of the world’s largest family businesses, the Family Capital 750. As the name suggests, the list includes 750 global family businesses with 2019 revenue ranging from $2.7 billion to $514 billion. in this week’s post, we share what we found when we scrubbed the data.
Family Business Director is excited to be a sponsor of this week’s Transitions Spring 2021 conference produced by Family Business Magazine. The theme for the conference is “Building the Future Family Business.” The conference offers a wide range of sessions in support of that theme. Additionally, we are looking forward to leading a breakout session on Wednesday (12:10-12:50 EDT) on the role of diversification in the family business.
