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Family Business Challenge

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The challenge of transitioning a family owned business.

The challenge of transitioning a family owned business.

Published in: Business, Technology

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  • 1. The Family Business DilemmaThe challenge of building, growing and leaving business wealth
    BROWNSTONE
    Capital Advisors LLC
    BROWNSTONE
  • 2. By the Numbers
    • More than one-half of all owners are 50 years of age or older …
    • 3. More than three-fourths of all owners have 50% or more of their personal wealth tied to their business
    • 4. More than 60% do not know the value of their business
    • 5. More than two-thirds do not have a business succession plan
    • 6. 70% fail to successfully transition their business to their heirs
    BROWNSTONE
  • 7. By the Numbers
    • 76% of all businesses will fail to transition …
    Owners will sell the assets … and close the doors
    INDUSTRY SECRET
    Of all the businesses listed for sale … about half will fail to do so!
    BROWNSTONE
  • 8. By the Numbers
    Conclusion …
    Owners who have been successful at starting and growing their business have not developed the skills needed to transition it to support “what comes next” …
    BROWNSTONE
  • 9. Business Life Cycle
    Personal Life Cycle
    Maturity
    Renewal
    Decline
    Growth
    Business Life Cycle
    Start-Up
    BROWNSTONE
  • 10. Business Life Cycle
    Maturity
    Renewal
    HIGH INCOME – LOW VALUE
    Decline
    Growth
    Start-Up
    BROWNSTONE
  • 11. The Challenge of Family Transition
    Family Owned Business Survey …
    88% …
    Transition to family successors
    2003 Mass Mutual Survey
    BROWNSTONE
  • 12. The Challenge of Family Transition
    88% … desire to make a successful transition
    • Gen 1 – Gen 2: 70% failure
    • 13. Gen 2 – Gen 3: 85% failure rate
    • 14. Gen 3 – Gen 4: 96% failure rate
    BROWNSTONE
  • 15. The Challenge of Family Transition
    88% … desire to make a successful transition
    • Gen 1 – Gen 2: 70% failure
    • 16. Gen 2 – Gen 3: 85% failure rate
    • 17. Gen 3 – Gen 4: 96% failure rate
    Owners do a far better job of creating business wealth than in transferring wealth to their family …
    BROWNSTONE
  • 18. Business Wealth and Wealth
    70% … failure … Creator to Successor
    85% … failure … 2nd Gen to 3rd Gen
    94% … failure … 3rd Gen to 4th Gen
    BROWNSTONE
  • 19. Business Wealth and Wealth
    Failure:
    Following the transition, the beneficiaries lost control of their wealth through foolish expenditures, bad investments, mismanagement, inattention, incompetence, family feuding, lawsuits, or other causes within their control.
    BROWNSTONE
  • 20. Business Wealth and Wealth
    Worldwide phenomena …
    • “Shirtsleeves to shirtsleeves in three generations”
    • 21. “Rice bowl to rice bowl …”
    • 22. “Clogs to clogs …”
    BROWNSTONE
  • 23. Business Wealth and Wealth
    Chinese saying …
    Wealth never survives
    three generations
    BROWNSTONE
  • 24. Top Level Reasons
    1. Families fail to understand that preserving wealth is a dynamic rather than a static process. Each generation must be able to create wealth. (Creation – Stasis – Entropy).
    2. Families fail to apply appropriate time frames for successful wealth preservation
    3. Families fail to understand that the fundamental issues of wealth preservation are qualitative, not quantitative
    BROWNSTONE
  • 25. An Inconvenient Truth
    The continued emphasis on
    maximizing the wealth to be transferred
    has done NOTHING to improve the situation
    The definition of insanity:
    “continuing to do the same thing, over and over again, and expecting different results.”
    Gertrude Stein
    BROWNSTONE
  • 26. What Are the Reasons?
    Poor tax minimization strategies …
    Poorly designed estate plans …
    4%
    4%
    First Conclusion:
    The Accountants and Estate Planning Attorneys are doing a great job!
    BROWNSTONE
  • 27. What Are the Reasons?
    1. A breakdown of Communications and Trust within the Family Unit
    60%
    Communication = Consists of two root words: common and action
    Common action brings alignment
    Trust = Consists of three main components
    Reliability: Do you do what you say you will?
    Sincerity: Are you becoming whom you should?
    Competence: Can you accomplish the task at hand?
    b
    BROWNSTONE
  • 28. What Are the Reasons?
    2. Inadequately Prepared Heirs
    25%
    Williams Group: “… many family leaders devoted far more time preparing their estate documents than they did to preparing their heirs for the impact of those documents.”
    BROWNSTONE
  • 29. What About Successful Transitions?
    Total Family Involvement
    2. A Process that Integrates Decisions
    3. Learning and Practicing New Skills
    BROWNSTONE
  • 30. What’s the First Step?
    Family Mission Statement:
    What is Our Shared?
    Purpose of Wealth?
    For what Purpose has our Family been so Blessed?
    BROWNSTONE
  • 31. Contact
    Paul Brown, Managing Principal
    Phone: 509-926-6922 (direct)
    E-Mail: paul.brown@brownstonecap.com
    URL: www.brownstonecap.com
    BROWNSTONE