The Family Business -- Part One
The Family Business -- Part Two
The Family Business -- Part Three
The Family Business -- Part Four
The Demise of the Family Business?
Continuing our summation of the American Family Business Survey 1995 sponsored by the Arthur Andersen Center for Family Business (Arthur Andersen & Co., SC), let us now examine some of the highlights of this informative study.
The majority of these family-controlled businesses have been formed since World War II with more than one-third of the leaders being 61 years of age or older. More than one-third of these leaders expect to continue playing a role in their businesses by never retiring (11 percent) or through semi-retirement (23 percent). Dilemmas in successor selection are apparent inasmuch as 40 percent of these withdrawing leaders have not designated a successor. Significantly, 42 percent suggest that co-CEOs are possible in the next generation.
More than half (51 percent) of these family businesses have a strategic plan in place. But interestingly, full details of their strategic plans are not shared with company management in 35 percent of these cases. Without the involvement and buy-in of management, execution of these plans is likely to be difficult. Virtually all (91 percent) expect their business to remain in the hands of the family over the next five years, and more than half (53 percent) restrict ownership through buy/sell agreements.
About 40 percent of these family businesses schedule periodic professional valuations of the company stock. The most common single method of valuation, book value, is cited by 30 percent of the respondents, although it may be the least satisfactory indicator of realistic market value.
These family-controlled businesses report increasing sales revenues; they are optimistic this growth will continue. A substantial majority (79 percent) have recorded increased revenues during the past five years. Since 1990, annual revenue growth of greater than 10 percent is reported by 30 percent of these companies, and growth rates of more than 20 percent is reported by 12 percent. The larger businesses report more rapid growth and anticipate a higher rate of growth. Significantly, the results of this survey reveal that growth is correlated with a more active board of directors, more family members in the business, having a strategic plan, and greater emphasis upon information technology and international markets. Although the majority of respondents (69 percent) have a purely domestic focus, about 8 percent of respondents do 11 to 50 percent of their business internationally; only 1 percent generate more than half of their revenues abroad.
Over the next five years, annual revenue increases of 6 percent or greater are foreseen by nearly two-thirds of these companies (66 percent). And a clear majority of these businesses (64 percent) expect to be enhancing employment over these next five years.
Identifying their toughest challenges, a near-majority (48 percent) predictably point to increasing competition. Further frequently-named challenges and frustrations include government regulations (40 percent), labor costs (31 percent) and a lack of qualified employees (29 percent). Corporate and/or personal income tax regulations are perceived to be the most onerous government burden (68 percent); other aggravating burdens include the environmental codes (49 percent) and regulations of the Occupational Safety and Health Agency (46 percent).
In conclusion, correlating the results of this survey, patterns emerge for the family-controlled businesses whose success can be measured by long-term survival, expanding revenues, and strong growth. These best practices encompass:
- Strategic planning: These plans must be communicated throughout the organization. Strategic planning is highly correlated with better estate and succession planning, and with stronger revenue increase.
- Active boards of directors: Active and independent boards are positively correlated with strategic planning and strong revenue growth.
- Continuing education: Almost 28 percent of respondents participate in continuing education centered on family businesses; they are likely to have greater awareness of succession, estate tax, and other business-continuity issues.
- Keep equity within the family: Almost 63 percent of family businesses restrict transfers of share ownership to preclude alien or hostile shareholders. A majority (53 percent) have buy/sell agree-ments and 40 percent confine ownership to family members actively employed in the business.
- Trusted business advisors: The most trusted business advisor by family business leaders is their accountant (44 percent); lawyers are the most trusted business advisor by 19 percent of these family businesses.
These last two columns have been based upon research conducted and published by the Arthur Andersen Center for Family Business (Arthur Andersen & Co., SC),711 Louisiana (Suite 1300), Houston, Texas 77002.
Your comments and suggestions for these pages are most welcomed!
Revised: January 13, 1997 TAF
© Copyright 1997 Thomas A. Faulhaber / The Business Forum Online®, All Rights Reserved