Family Business Challenge
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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.

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    Family Business Challenge Family Business Challenge Presentation Transcript

    • The Family Business DilemmaThe challenge of building, growing and leaving business wealth
      BROWNSTONE
      Capital Advisors LLC
      BROWNSTONE
    • By the Numbers
      • More than one-half of all owners are 50 years of age or older …
      • More than three-fourths of all owners have 50% or more of their personal wealth tied to their business
      • More than 60% do not know the value of their business
      • More than two-thirds do not have a business succession plan
      • 70% fail to successfully transition their business to their heirs
      BROWNSTONE
    • 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
    • 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
    • Business Life Cycle
      Personal Life Cycle
      Maturity
      Renewal
      Decline
      Growth
      Business Life Cycle
      Start-Up
      BROWNSTONE
    • Business Life Cycle
      Maturity
      Renewal
      HIGH INCOME – LOW VALUE
      Decline
      Growth
      Start-Up
      BROWNSTONE
    • The Challenge of Family Transition
      Family Owned Business Survey …
      88% …
      Transition to family successors
      2003 Mass Mutual Survey
      BROWNSTONE
    • The Challenge of Family Transition
      88% … desire to make a successful transition
      • Gen 1 – Gen 2: 70% failure
      • Gen 2 – Gen 3: 85% failure rate
      • Gen 3 – Gen 4: 96% failure rate
      BROWNSTONE
    • The Challenge of Family Transition
      88% … desire to make a successful transition
      • Gen 1 – Gen 2: 70% failure
      • Gen 2 – Gen 3: 85% failure rate
      • 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
    • Business Wealth and Wealth
      70% … failure … Creator to Successor
      85% … failure … 2nd Gen to 3rd Gen
      94% … failure … 3rd Gen to 4th Gen
      BROWNSTONE
    • 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
    • Business Wealth and Wealth
      Worldwide phenomena …
      • “Shirtsleeves to shirtsleeves in three generations”
      • “Rice bowl to rice bowl …”
      • “Clogs to clogs …”
      BROWNSTONE
    • Business Wealth and Wealth
      Chinese saying …
      Wealth never survives
      three generations
      BROWNSTONE
    • 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
    • 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
    • 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
    • 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
    • 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
    • What About Successful Transitions?
      Total Family Involvement
      2. A Process that Integrates Decisions
      3. Learning and Practicing New Skills
      BROWNSTONE
    • 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
    • Contact
      Paul Brown, Managing Principal
      Phone: 509-926-6922 (direct)
      E-Mail: paul.brown@brownstonecap.com
      URL: www.brownstonecap.com
      BROWNSTONE