A Taxing Matter for Family Businesses

Family business owners cite different motives for investing their time, energy, and savings to build successful businesses.  Some have entrepreneurial zeal, while others are creators who see problems in the world that they can solve.  Others are natural leaders who are inspired by the job opportunities and other “positive externalities” that successful enterprises generate for employees and the communities in which they operate.  But common to nearly all family business owners is the desire to provide financially for their heirs.  As a result, one of the most common concerns such owners cite is the ability to transfer ownership of the family business to the next generation in the most tax-efficient way.

What Is Your Family’s Most Valuable Asset?

European investment banking icon Rothschild & Co. recently announced that 37-year old Alexandre de Rothschild will be taking the reins at the firm, succeeding his father at the bank’s May shareholders’ meeting.  The new chairman is a member of the seventh generation of the family.  While the future performance of the bank under the younger Mr. Rothschild will be the ultimate barometer of success, the Rothschild family clearly has fostered a culture of developing the next generation.  Few families have the long history of next-gen development that the Rothschild’s do, but it is a task that becomes more important with each successive generation.  The long-term health of any organization ultimately depends on the quality of the rising generation of leaders, and families are no different.

Is There a Ticking Time Bomb Lurking in Your Family Business?

When we talk with family business owners, most confess a vague recollection of having signed a buy-sell agreement, but only a few can give a clear and concise overview of their agreement’s key terms. Yet no other governing document has such potentially profound implications for the business and for the family. My colleague of nearly twenty years, Chris Mercer, literally wrote the book(s) when it comes to buy-sell agreements. Chris and I recently sat down to talk about buy-sell agreements in the context of family businesses.

Management Succession in Family Businesses

From the perspective of family business, “Next Man or Woman Up” is one approach that the board of directors can take to management succession. Perhaps for some family businesses, management succession is as simple as pulling the next available candidate from the management depth chart. But we suspect that approach falls short for most family businesses. 

Father Knows Best? Management Accountability in Family Businesses

Management accountability is hard for any company; effective management accountability within a complex web of family relationships can be an order of magnitude more difficult. Since some family members may fill multiple roles, clear and appropriate expectations paired with measurable outcomes are foundational to a management accountability structure that promotes business sustainability and family cohesion.

Diversification and the Family Business

The appropriate role of diversification in multi-generation family businesses is not always obvious. One of the most surprising attributes of many successful multi-generation family businesses is just how little the current business activities resemble those of 20, 30, or 40 years ago. In some cases, this is the product of natural evolution in the company’s target market or responses to changes in customer demand; in other cases, however, the changes represent deliberate attempts to diversify away from the legacy business.

To Invest or Not to Invest, That is the Question

All family businesses need to evaluate how they are investing for future growth. Managers and directors must navigate carefully between the risks of depressed future returns through over-investment (i.e. empire building) and losing existing competitive advantages through insufficient reinvestment. The long-term sustainability of the family business depends on it.

Dividend Policy and the Meaning of Life (Or, At Least, Your Business)

What should your family business’s distribution policy be? Answering that question requires looking inward and outward. Looking inward, what does the business “mean” to the family? Looking outward, are attractive investment opportunities abundant or scarce? Once the inward and outward perspectives are properly aligned, the distribution policy that is appropriate to the company can be determined by the board and communicated to shareholders.

How to Promote Positive Shareholder Engagement

Based on discussions with family business leaders from across the country at the most recent Transitions conference, we wrote an article addressing themes among attendees, and we continue the discussion in this article. One challenge noted by leaders of multi-generation family businesses was how to promote positive shareholder engagement.

What Keeps Family Business Owners Awake at Night?

We recently attended the Transitions West conference hosted by Family Business Magazine. The event brought together representatives from nearly 100 family businesses of all sizes. Through the educational sessions and informal conversations during breaks, we came away with a better appreciation of the joys, stresses, privileges, and responsibilities which come with stewarding a multi-generation family business. While every family is unique, this article presents a few common themes and/or concerns stood out among the attendees we met.