Cox Family Enterprise Center Aids In 5-Year Small Business Survey
01 May 2008
Family Businesses Facing Challenges By Bethany A. Wood Webcpa.com 1 May 2008 It’s been frequently said that small business is the engine of the American economy. If so, family businesses are of the high performance, whisper quiet, finely tuned kind, humming along at an impressive clip—even if there might be a few bumps ahead. But to stay on track and avoid breakdowns, family businesses would do well to schedule regular tune-ups with their financial professionals. That’s the snapshot of today’s family businesses that emerges from a new survey by Massachusetts Mutual Life Insurance Company (MassMutual), the Family Firm Institute, and the Cox Family Enterprise Center at the Kennesaw State University Coles College of Business. The 2007 Family Business Survey, conducted every five years, found that family-owned businesses are growing both in terms of revenues and jobs, and their leaders are optimistic about their businesses’ prospects for robust growth. Increasingly, those leaders are women; there has been an almost five-fold increase in the number of women leaders in family businesses since 1997, and almost a third of family firms indicate they may have a female as their top successor. But as impressive as their prospects are, family businesses face some important future challenges, particularly those stemming from a lack of formal succession planning and preparation as well as attention to personal financial issues, according to the study. The most important red flags: many family business owners have not adequately prepared for managerial and ownership succession, nor have they prepared a personal estate plan to ensure an efficient transfer of wealth to heirs. To ensure continuity and future growth and security, family business owners need to focus attention on succession, estate planning and other family business and financial issues. And to address those issues effectively, family business owners need the guidance of financial professionals who understand the unique issues, needs and challenges they face. Some leading financial services companies have programs that equip their agents with such skills such as the Certified Family Business Specialist Program, the first accredited graduate program developed exclusively with The American College for MassMutual. The independently-conducted survey canvassed more than 1,000 family-owned, predominantly closely held businesses to gauge strengths, challenges, and changes since the last survey was conducted in 2002. Here are 10 important points from among the study’s many findings: 1. In a major advance from 2002, 24 percent of the businesses surveyed have a female CEO or President. In 2002 that number was only 10 percent (which was already double 1997 numbers). The rate at which women hold leadership positions in family businesses is much higher than that of their counterparts in primarily non-family firms in the Fortune 1000, of which only 2.5 percent are currently led by women (Fortune magazine, April 30, 2007). 2. And the prevalence of women in leadership positions carries through the organization even when moving down the org chart. On average, the family businesses in our sample each employ nearly five family members, of which 60 percent are men and fully 40 percent are women, only slightly behind the nearly 60 percent (57.2 percent) of all firms that have women in top management team positions. 3. Nearly three out of four firms report increased revenues over the past three years, with more than one-third reporting increases in excess of 11 percent. Looking forward, 22 percent expect double digit growth and more than half expect an increase in sales revenues up to 10 percent. More than one-third expects to add employees. 4. Many family businesses report growing faster (27.1 percent), and only 15.4 percent report growing slower, than their competitors, suggesting that family businesses have a sustainable competitive advantage. 5. Most family businesses (60 percent) believe that their ethical standards are more stringent than those of competing firms. More than one third (37 percent) have written ethics codes, and discussions about ethics with employees, customers, and partners are frequent. 6. Despite perceptions that family businesses are less rigorous planners, significant percentages of family businesses use traditional business tools and processes, such as strategic plans, buy-sell agreements, and regular formal valuations, and have active boards. 7. Family unity and cohesion are critical to family business success, according to respondents. Eighty-seven percent say family members share values and 83 percent reported unity on ownership matters such as strategy and management. Eighty-five percent report that the family shares similar values with employees and customers. 8. When considering their top three most trusted advisors, business owners ranked their accountants first, just as they did in 2002; spouses second, up from fifth in 2002; and their lawyers third, down a spot from 2002. 9. Among family business owners who expect to retire in five years, fewer than half have selected a successor; of those expecting to retire in six to 11 years, less than a third have done so. Nearly a third has no estate plan beyond a will, nearly double the number of those surveyed in 2002. And only 54 percent report a clear understanding of the impact of estate taxes, which can jeopardize future generations’ ability to continue the business. 10. Almost a third (30.5 percent) have no plans to retire, ever; and nearly another third (29.2 percent) report that retirement is more than 11 years away. Since the median age of the current leaders is 51, this means that many people plan to die in office, which is not beneficial to the family, the firm, its employees, and its clients. Despite the warning signs of potential future troubles, the most recent news from the family business front is impressively good, raising prospects for continued growth for this critical sector of the economy. However, to ensure long-term, multi-generational success, family business owners and the financial professionals who guide them need to keep one eye on the present and one eye on the future. Building a winning family business is an impressive achievement, and ensuring its efficient transfer to the next generation of leaders ensures that the achievement will have lasting impact for the owners, their successors, and clients. Bethany A. Wood is marketing director for business owner advocacy, U.S. Insurance Group, MassMutual Life Insurance Co. (MassMutual). To learn more about how MassMutual can help family businesses or to obtain an executive summary of the survey, visit www.massmutual.com/familybusiness.
Family Businesses Facing Challenges
By Bethany A. Wood
Webcpa.com 1 May 2008
It’s been frequently said that small business is the engine of the American economy. If so, family businesses are of the high performance, whisper quiet, finely tuned kind, humming along at an impressive clip—even if there might be a few bumps ahead. But to stay on track and avoid breakdowns, family businesses would do well to schedule regular tune-ups with their financial professionals.
That’s the snapshot of today’s family businesses that emerges from a new survey by Massachusetts Mutual Life Insurance Company (MassMutual), the Family Firm Institute, and the Cox Family Enterprise Center at the Kennesaw State University Coles College of Business.
The 2007 Family Business Survey, conducted every five years, found that family-owned businesses are growing both in terms of revenues and jobs, and their leaders are optimistic about their businesses’ prospects for robust growth. Increasingly, those leaders are women; there has been an almost five-fold increase in the number of women leaders in family businesses since 1997, and almost a third of family firms indicate they may have a female as their top successor.
But as impressive as their prospects are, family businesses face some important future challenges, particularly those stemming from a lack of formal succession planning and preparation as well as attention to personal financial issues, according to the study. The most important red flags: many family business owners have not adequately prepared for managerial and ownership succession, nor have they prepared a personal estate plan to ensure an efficient transfer of wealth to heirs.
To ensure continuity and future growth and security, family business owners need to focus attention on succession, estate planning and other family business and financial issues. And to address those issues effectively, family business owners need the guidance of financial professionals who understand the unique issues, needs and challenges they face.
Some leading financial services companies have programs that equip their agents with such skills such as the Certified Family Business Specialist Program, the first accredited graduate program developed exclusively with The American College for MassMutual.
The independently-conducted survey canvassed more than 1,000 family-owned, predominantly closely held businesses to gauge strengths, challenges, and changes since the last survey was conducted in 2002.
Here are 10 important points from among the study’s many findings:
1. In a major advance from 2002, 24 percent of the businesses surveyed have a female CEO or President. In 2002 that number was only 10 percent (which was already double 1997 numbers). The rate at which women hold leadership positions in family businesses is much higher than that of their counterparts in primarily non-family firms in the Fortune 1000, of which only 2.5 percent are currently led by women (Fortune magazine, April 30, 2007).
2. And the prevalence of women in leadership positions carries through the organization even when moving down the org chart. On average, the family businesses in our sample each employ nearly five family members, of which 60 percent are men and fully 40 percent are women, only slightly behind the nearly 60 percent (57.2 percent) of all firms that have women in top management team positions.
3. Nearly three out of four firms report increased revenues over the past three years, with more than one-third reporting increases in excess of 11 percent. Looking forward, 22 percent expect double digit growth and more than half expect an increase in sales revenues up to 10 percent. More than one-third expects to add employees.
4. Many family businesses report growing faster (27.1 percent), and only 15.4 percent report growing slower, than their competitors, suggesting that family businesses have a sustainable competitive advantage.
5. Most family businesses (60 percent) believe that their ethical standards are more stringent than those of competing firms. More than one third (37 percent) have written ethics codes, and discussions about ethics with employees, customers, and partners are frequent.
6. Despite perceptions that family businesses are less rigorous planners, significant percentages of family businesses use traditional business tools and processes, such as strategic plans, buy-sell agreements, and regular formal valuations, and have active boards.
7. Family unity and cohesion are critical to family business success, according to respondents. Eighty-seven percent say family members share values and 83 percent reported unity on ownership matters such as strategy and management. Eighty-five percent report that the family shares similar values with employees and customers.
8. When considering their top three most trusted advisors, business owners ranked their accountants first, just as they did in 2002; spouses second, up from fifth in 2002; and their lawyers third, down a spot from 2002.
9. Among family business owners who expect to retire in five years, fewer than half have selected a successor; of those expecting to retire in six to 11 years, less than a third have done so. Nearly a third has no estate plan beyond a will, nearly double the number of those surveyed in 2002. And only 54 percent report a clear understanding of the impact of estate taxes, which can jeopardize future generations’ ability to continue the business.
10. Almost a third (30.5 percent) have no plans to retire, ever; and nearly another third (29.2 percent) report that retirement is more than 11 years away. Since the median age of the current leaders is 51, this means that many people plan to die in office, which is not beneficial to the family, the firm, its employees, and its clients.
Despite the warning signs of potential future troubles, the most recent news from the family business front is impressively good, raising prospects for continued growth for this critical sector of the economy. However, to ensure long-term, multi-generational success, family business owners and the financial professionals who guide them need to keep one eye on the present and one eye on the future. Building a winning family business is an impressive achievement, and ensuring its efficient transfer to the next generation of leaders ensures that the achievement will have lasting impact for the owners, their successors, and clients.
Bethany A. Wood is marketing director for business owner advocacy, U.S. Insurance Group, MassMutual Life Insurance Co. (MassMutual). To learn more about how MassMutual can help family businesses or to obtain an executive summary of the survey, visit www.massmutual.com/familybusiness.