15th Sep 2014
Shirtsleeves to Shirtsleeves in 3 Generations
Why Family Continuity Planning is Important
FCB = Family Controlled Business (generally one where the family controls or is a significant shareholder, family members are in key management positions, family derives significant wealth or identity from the business and family has multi-generational intentions)
Why mix “family” and “business”?
FCB are not just “mom & pop” operations – FCB comprise 35 – 40% of Fortune 500 and S&P 500.
FCB (listed and private) outperform non-FCB in:
- Return on assets;
- Total shareholder returns;
- Revenue growth; and
- Income growth
It is how the family carries on business as a family unit (the family values or the “familiness”) that creates this competitive advantage that results in more monetary value.
Surprised at how $ valuable “familiness” is? If you are, then you are with the majority of people that think that family businesses are too emotional to be profitable. To the contrary, it is the emotion (passion to FCB) and long term vision that creates this extra value if it is channelled correctly.
But Isn’t my succession plan enough?
Succession (or estate) plans deal with things – passing on assets:
- Shareholder agreements
Here is a tidbit for you. Kennesaw State University did research on more than 18,000 companies to determine how effective succession planning was at facilitating successful succession. The study was done twice since the first results were not believed. Result: NO correlation between succession planning and successful succession. It appears that the traditional “succession planning” does not deal with the real “succession” issues.
So the answer to your question is no.
Family continuity planning deals with people – passing on values and creating a resource for many generations:
- The family – keeping it together
- How to pass the family competitive advantage to future generations
The question for the family is: do you want to deal with things or do we want to deal with values and vision
Dealing with things is fine, but will increase the likelihood of “Shirtsleeves to Shirtsleeves in 3 Generations”. But at least the next generation or two will have a good time spending the money.
Dealing with values and vision allows you, the current family, the opportunity to pass on the family values to future generations. The FCB exists because of these family values so by passing them on, it provides future generations the continuing advantage to grow the economic and social value of the FCB over the generations. Whether you created this “familiness” intuitively or intentionally, why would you want to deprive future generations of this advantage that you have created and which has clearly been so successful for you and your current family?
If you are interested in talking family values, let’s chat: email@example.com