Corporate Finance & Planning Insights for Multi-Generational Family Businesses
The economic effects of the COVID-19 pandemic are dire, and family businesses are not immune to the economic fallout from the virus. Yet we are confident that family businesses are best positioned to survive and lead in the post-pandemic economic recovery.
For family shareholders who are optimistic about the resilience of their family businesses and focused on the long view, this is an ideal time to execute intrafamily transfers in pursuit of estate planning objectives.
In this week’s post, we have assembled some helpful resources we have come across that provide helpful insight on the estate planning opportunities and strategies available to family business owners during 2020.
To be sustainable, family businesses need to invest capital wisely. As directors, the investment decisions you make today can define the family business for future generations. Before making a significant investment decision that will be hard to reverse, it is a good idea to evaluate how other companies in your industry are investing their capital.
The goal of “maximizing shareholder value” is fast assuming its rightful place in the dustbin of financial history as more families embrace a broader vision of relevant stakeholders for their enterprises. The freedom to develop a balanced scorecard of performance objectives that includes both financial and non-financial goals is one of the most rewarding aspects of family business.
Embracing non-financial objectives does not mean, however, that a family business can be unconcerned about their profitability. After all, operating efficiency helps to underwrite the various non-financial goals and values the family chooses. So, our first comparison when benchmarking performance for a family business is to evaluate profitability.
Managing a family business without benchmarking data is a bit like shopping for clothes in a store with no mirrors. Without context, financial performance is hard to interpret. Directors are responsible for making long-term decisions that can influence the course of a family business for decades. Access to relevant benchmarking data is essential for directors as they contemplate strategic financing, investment, and distribution decisions.
We have structured our 2020 Benchmarking Guide for Family Business Directors around seven questions designed to provide the necessary context for financial decision-making in family businesses.
In a recent Wall Street Journal article, Professor Alex Edmans of the London Business School offers an impassioned plea for public companies to stop prioritizing dividend payments. While his provocative suggestions may have some merit for public companies (which were, in all fairness, the professor’s intended audience), they do not translate well to most family businesses. So, how should family businesses think about dividend policy? In this post, we provide a non-exhaustive list of five things to keep in mind while evaluating your family business’s dividend policy.
Accumulating real estate seems to be a natural strategy for many family business owners. After all, real estate is generally assumed to be less risky than the operating business of the family. Further, so long as the properties have a reasonable range of alternative future uses, the returns to the real estate portfolio often have a low correlation to the returns from the operating business. However, the market data we review in this week’s posts suggests that these assumptions may not hold as well in a pandemic.
While it may be difficult to think past the day-to-day of operating in the current environment, acquisition opportunities are likely to be on the horizon over the next few years, most likely at attractive valuations for acquirers.
In last week’s post, we demonstrated how critical getting the level of value right is for family businesses for estate planning, acquisitions, and divestitures. We conclude our series on the levels of value this week, by turning our attention to shareholder redemption transactions.
In last week’s post, we defined the three principal levels of value and explained that the levels reflect differing perspectives on expected future cash flows and risk. This week, we turn our attention to the importance of the levels of value for family businesses.
