Corporate Finance & Planning Insights for Multi-Generational Family Businesses
Family Business Director is off enjoying 4th of July festivities this week. For our readers that are looking for some beach reading, we thought we would direct your attention to some of our more popular posts in case you missed them the first time around.
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.
As a part of a series of to-do lists aimed at ensuring the long-term sustainability of your family business, this week’s to-do list focuses on eliminating unwanted surprises related to the estate tax. Part of this means adequately preparing shareholders to manage their emerging liabilities.
Family business owners cite different motives for investing their time, energy, and savings into building successful businesses. Most family business owners have 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.
It is understandably frustrating for family business directors when the simple question – what is our family business worth? – elicits a complicated answer. While we would certainly prefer to give a simple answer, the reality a valuation is attempting to describe is not simple.
The answer depends on why the question is being asked. We know that sounds suspect, but in this post, we will demonstrate why it’s not. Let’s consider three potential scenarios that require three different answers.
This post is the first of four installments from our Corporate Finance in 30 Minutes whitepaper. We begin with a brief overview of return and risk, the two basic building blocks of corporate finance.
In a previous post, we identified the four basic economic meanings that a family business can have. For some families, the business is an economic growth engine for future generations. For others, the family business is a store of value. Alternatively, the family business can be a source of wealth accumulation or a source of lifestyle for family members.
As noted, there are certain family and business characteristics that can help family members discern what meaning “fits” their circumstances best. The meaning of the family business, in turn, has implications for the dividend policy, reinvestment, and financing decisions for the family business. In this post, we examine how the meaning of the family business influences these corporate finance decisions.
This case study summarizes a recent engagement in which we helped second-generation shareholders balance two objectives in setting up a dividend policy. They desired a dividend policy that would enable each shareholder to set aside a significant nest egg of liquidity independent of his or her ownership of the Company while also being reasonable for the company, given the development of outside management and the need for and opportunities for the Company to grow.
A recent federal court decision in a tax dispute represented a significant victory for family business shareholders. The case (Kress v. U.S.) revolved around the value of a multi-generation family business, Green Bay Packaging (“GBP”). While we generally think family business directors have more important things to think about than tax-related judicial decisions, the Kress decision is one with which family business directors should be familiar. In this post, we identify five important takeaways for family business directors from Kress.
Capital budgeting tools are ideal for answering the question: Is the proposed capital project financially feasible? Too often, however, we see these tools being used to answer what seems to be a related question, but one that the tools are simply not designed to answer: Should we undertake the proposed capital project? The first question opens the door to the second, but the tools of capital budgeting – no matter how sophisticated or quantitatively precise – cannot answer the second. To answer the second question, family business directors need to consider three qualitative questions identified in this post.
