Archives: Governance & Business Operations

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Tax Reform – Good or Bad for Family-Owned Businesses?

At this point, no one knows exactly how or when changes to federal income tax, gift tax and/or estate tax will occur. What we do know now is that what has been proposed so far is likely not going to be the final product. So, stay tuned, but do not stop or delay your succession planning efforts. Instead, focus on your long-term vision and build flexibility into your … Continue Reading

Sibling Rivalries: Turning Competition into Collaboration When it Comes to the Family Business

Running a family business can from time to time strain family relationships.  This is especially true between siblings who may feel as if they are in constant competition to determine who is worthy enough to take over the family business.  However, a sibling relationship does not have to be strained so long as siblings work together to foster a respectfu… Continue Reading

Future Proofing Boards of Directors for Family Businesses

Michael Eisner, former CEO of Walt Disney, said it best that “management is not a science, it is an art.” But, not all art stands the test of time—and the composition of the board, and the way the directors manage a family owned business may very well determine whether that business even exists in the next 10 years.

The masterpiece that can be a family owne… Continue Reading

To Sell or Not to Sell Your Business? That is NOT the Question

Business buyouts are red hot, and pricing is back up to where it was before the Great Recession, thanks to cheap financing and a stronger U.S. economy.  The fact is that this market won’t last forever.

Feeling the pressure to exit?  That’s understandable, especially if you’re presented with what looks like an incredible deal.  But we suggest you t… Continue Reading

What “Arrested Development” Teaches the Family Business

The award-winning TV sitcom Arrested Development, now in re-runs on Netflix, was premised on the rise (and mostly fall) of an American family business, the Bluth Company, owned by a comically dysfunctional family.

Engaged in “mini-mansion” real estate development in Newport Beach, California (and, illegally, Iraq) the Bluth Company fell on hard t… Continue Reading

Mom Let You Grow up to be a Cowhand, Now What? – Legacy Planning in Agricultural Industries

A typical family-run ranch or farm may look like this: grandparents still own and collect rent on the majority of land, parents serve as CEOs, and the third generation works the land as general managers while raising the upcoming progeny at the homestead. All of these positions fit the respective generations’ needs and status right now, but a family busin… Continue Reading

Beyond Succession; Opening a Discourse About Inheritance

Recently we published a post in our blog about succession and the steps necessary to see it through. Having an open, honest, and transparent discourse with family members is one such step. Yet, this is often more easily said than done. A recent study conducted by Wilmington Trust on families with a net worth in excess of $20 million found that many leaders of we… Continue Reading

Simple Ways Advisors Can Help with Family Business Governance

Let’s face it.  “Governance” often seems like a dirty word that is best avoided and never uttered.  But, all family-owned businesses must be governed and the governance process is usually already in place, albeit often ignored.

This is a missed opportunity.  Ignoring the governance process creates huge challenges for succession planning and Continue Reading

Paying your children to work in the family business? How much pay is too much?

It’s important to remember that when your family business sets compensation for family members, the IRS may be looking over your shoulders.  Why?  The IRS may disallow the deductibility of salaries and other compensation if it determines that the compensation is higher than “reasonable.”  The family business discussed in this article by Mich… Continue Reading

Consider The Risks Before Electing S Status For Your LLC

Family-owned businesses are often formed as LLCs.  For federal tax purposes, an LLC with two or more members is treated as a partnership unless it elects otherwise.  Income earned by a partnership is not subject to a separate entity-level tax under federal tax laws.  Rather, net profit or net loss of the partnership passes through to its partners who mus… Continue Reading

Success in Succession: Using Strategic Planning to Address the “Missing Middle”

Typically, only 12% of family businesses reach the third generation, and as little as 3% make it past the fourth generation. According to PwC’s recent global survey of over 2,800 family businesses in 50 countries, these statistics stem from a lack of succession planning.

Only 15% of family firms have adopted a meaningful plan for their succession proces… Continue Reading

The Importance of Leadership Training Outside the Family Business

For up-and-coming family members who anticipate becoming leaders in their family business, an increasingly common requirement is that they first get meaningful business experience outside the family business.  Michael A. Klein of MK Insights recently published an interesting analysis of such requirements in Smart Business Online, and lays out goo… Continue Reading

Perils in Family Business Succession: Dynasty or Meritocracy?

Big family business conglomerates can get into big trouble when impacted by negative global market forces.  That’s the story of Hanjin Shipping Co., a family-owned Korean shipping company (and part of a large Korean chaebol, or conglomerate) that filed for bankruptcy protection in late August 2016.

But, according to this linked article in the Seattl… Continue Reading

Separate but Equal

One of the shining examples of successful family businesses at the highest level is Power Corp. of Canada.  In 1968, after nearly two decades of successful acquisitions, Paul Desmarais acquired Power Corp. to be the anchor of his growing conglomerate of companies.  For the next 28 years, he grew Power Corp. into one of the largest and most successful hold… Continue Reading

Proposed Regulations Would Curtail Most Valuation Discounts for Family-Owned Businesses

2016 Planning Opportunity

Recently proposed Treasury Regulations (“Proposed Regulations”), if enacted as proposed, would curtail valuation discounts that currently reduce the value of certain business interests transferred during life or at death for gift, estate, and generation-skipping transfer tax purposes. The limitation or eliminati… Continue Reading

Earn-out Pitfalls for Business Owners

Recently, a couple of business owners received an offer to buy their company.  The potential buyer proposed paying 25% of the Company’s value in cash up front and paying the remaining 75% over time, contingent on certain earn-out targets being met in the future.  The owners wanted some thoughts on this structure.

Earn-outs are not uncommon in the sale o… Continue Reading

The Next Generation

Almost by definition, a family-owned business consists of multiple generations of owners and operators.  The different generations may have different visions for the business, but they are usually all aligned on wanting what is in the best interests of the Company.  When it comes to issues of succession planning, however, there is an inherent tension … Continue Reading

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