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June 25, 2004
Family Business Facts
RM Cornwall (my Dad) sent me an article based in large part on a comprehensive study of the state of family business. He lives in Miami, where the vast majority of entrepreneurial ventures are family run. But, family businesses quietly comprise a major part of the US economy. Quoting a news release about this study conducted by faculty from Kennesaw State University, Loyola University Chicago, and Babson College:
"(F)amily-owned business accounts for 89 percent of total annual U.S. tax return filings. They generate 64 percent of the Gross Domestic Product. And, they employ 62 percent of the nation's workforce."
The study, which was released last year reveals some fascinating insights into this quiet giant. The researchers base their findings on surveys of over 1000 family businesses.
Family businesses are financially very healthy. They have seen a more than fifty percent increase in revenues since 1997, with an average of $36.5 million in revenues.
Family businesses tend to be run fairly conservatively. "Debt remains comfortably low. More than 25 percent of survey respondents report no debt other than trade payables, and another 30 percent have moderate debt levels, in the range of 1 percent to 25 percent of equity."
They are amazing stable in terms of family control. 90 percent report that family will still be in control in five years and 85 percent say that the successor from the current CEO will likely be a family member. 34 percent of these will likely be a woman. This succession is not some far off event for many of these businesses, as 39 percent expect a succession within five years. This is an unprecedented turnover rate for any class of business.
The study finds that the older generation does suffer from some denial about their own longevity and mortality.
"Only 62 percent of significant shareholders report knowing of the senior generation's share-transfer intentions. Such gaps in understanding are likely to impede the business' capital-needs plans for estate taxes and stock redemptions, as well as generate friction among family members. Further, respondents' plans to rely heavily on life insurance to cover most of the death-tax tab may be unrealistic, since 55 percent of respondents fail to conduct regular, formal valuations of company share value and, therefore, cannot accurately forecast estate taxes."
Even if your business is not now a family business, it may become one. Many of these companies were founded shortly after World War II and at that time had no definite plan to keep their business in the family. On the other hand, many entrepreneurs who hope to make their companies family businesses may not see this dream become a reality without careful planning. Generational transition is a tricky process that is prone to many stumbles and even failures.
Posted June 25, 2004 07:32 AM
Comments
I believe strongly in the power of family business. My family has had a flower shop in the Nashville and Chattanooga areas for over 100 years and is still making a profit. Times have been tough, and management has actually changed over the years. At one point, there was strong family conflict that resulted in firing of certain individuals.
My parents and brother also all work together in a dental practice here in Nashville. My father started this practice from scratch with my mother's help. Now, my brother has had it easy not having to go into debt to start a pratice. There are tough times for my family as well when certain decisions arise or times change. At the end of the day, they are proud that they made the decisions they did earlier in their lives.
I think Nashville is a perfect place to witness the success of family owned businesses. There are many groceries, real estate firms, florists, and ither local businesses that have thrived over the years. It is refreshing to see the success of one family's dream survive!
Everyone should keep in mind how challenging it can be to be in business with family, but it can also be rewarding. No one works harder in my family businesses than the family. No one is as passionate than the family.
Posted by: Elizabeth Adams at July 15, 2004 09:36 AM
I had no idea that family business comprised such a large percentage of revenue and GDP. I think it says a lot about the relationships Americans have with their families, which directly contradicts what most surverys and media report about today's families and all their "problems."
Elizabeth made an excellent point when she noted the challenge that goes along with the family business. I love my family, but I can't imagine working with them on a daily basis. It has to put a major strain on their relationships. In addition, family business seems like it would be completely impossible to "leave work at work."
Finally, I think the more family businesses present in the economy, the "better" our businesses will be. And I say that in the context that families tend to take great pride and self satisfaction in their products and/or services. This attitude creates a more enjoyable experience for the employees and the customers.
Posted by: Raven Teeples at August 5, 2004 02:56 PM
at Belmont University in Nashville, Tennessee. He consults with a variety of businesses on start-up and growth related issues, and with larger corporations on re-establishing entrepreneurial cultures within their organizations. Dr. Cornwall's current research interests include entrepreneurial finance and entrepreneurial ethics. He has authored or co-authored four books.
