It’s time to get serious about succession planning

It’s never too early to start working on your succession plans if the future of your family business involves the next generation. The Fall 2017 schedule for Family Business 360 is loaded with great topics and top-notch presenters to help you move your plans forward. Topics include defining your succession strategy, avoiding estate planning mistakes, implementing advisory boards, and more.

Follow the links below for more information and registration for each event, or call 800-859-7609. Registrations are $40, with a 25% discount available for three or more. Events are limited to family business owners, family members, and key personnel.

Visit the Family Business 360 web page for complete details. Spring 2018 events will be added soon.

Fall 2017 Breakfast Events

Tigard, October 12, 2017
Don Bielen and Paris Powell – Perkins & Co
How to Build a Well Defined Succession Strategy

Portland, November 16, 2017
Jackson Lewis – Tonkon Torp LLP
Don’t Be “Wise Too Late” – An Estate Planning Guide to Business Transitions

Tigard, December 7, 2017
Paul Menig – Tech-I-M
Don’t Grow It Alone – How Advisory Boards Drive Success

Portland, January 18, 2018
Justin Miller and Chad Wall – BNY Mellon Wealth Management
Secrets of Successful Families – Transferring Values with Wealth for a Lasting Legacy

Fall 2017 Webinar

Online Webinar, December 13, 2017
Steve Schein – L4S Consulting
Why Sustainability Strategy Matters to Family Companies

Building the value of your family business is not just about private equity investors and acquiring other firms. There are a variety of internal practices that a family business can undertake to build sustainable value in the enterprise.

Here are four takeaways from the Family Business 360 podcast episode “Building Family Business Value from the Inside Out” featuring Francis Brown of Key Private Bank. Listen to the complete episode online for more insights on building the value of your family business.

Building business value is a good idea whether you plan to transition within the family or not

A high-value business will increase your options when it comes time for an ownership transition. If the next generation of family will take over ownership then you will be transferring a healthy, robust business. If plans change and a sale outside of the family becomes necessary, you will more likely receive your desired value in a sales transaction.

It is easy to lose your sense of objectivity when you think about the value of your business

“Valuation gaps” occur when the market values the business lower than the owner’s expected value. This gap can cause big issues with transitions. Research in 2016 by Pepperdine University confirmed the magnitude of the problem; valuation gaps account for 40% of failed ownership transactions. Using a professional valuation expert can help avoid overestimating the value of your own business.

Short-term value boosts can harm the business in the long-term

Business owners often employ “quick fixes” to increase value. Short-term tactics that aim to boost sales or cut costs can actually have a detrimental effect on business value. A rapid increase in sales may look good on the balance sheet, but your organization may not be able to handle the increased volume, leading to missed orders and lost customers. Sustained cost cutting may lead to lower-quality customer service and employee burnout. Both of these scenarios increase your business risk and lower your business value.

Business value is more than just EBITDA and market growth

One way to increase the value of your business is to reduce your cost of capital. You can achieve this by Increasing your quality of operations in eight key areas: leadership, management, people, operations, sales, marketing, legal and finance. Companies that focus on strengthening these areas will generally have a higher value than similar companies with the same EBITDA and levels of market growth.

Listen to the complete episode online for more comments and insights on growing family business value.

Thank you to Francis Brown of Key Private Bank for appearing on the podcast.

Healthy family business communication rarely happens all by itself. Without awareness and effort by all parties to keep it moving smoothly you may find communication sliding off course, leading to misunderstandings and conflict.

Here are four takeaways from the Family Business 360 episode “Avoiding the Ditch: Keeping Your Family Business Communication On Track,” featuring Mark Wickman of Family Business Counsel. Listen to the complete episode online for more insights on family business communication.

Increasing awareness is a first step

Clear communication requires an increases level of awareness. By working to increase our self-awareness along with awareness of what’s happening in our family and our business, we can start to better understand what potential motivating factors affect the people in our relationships. “If that kind of thinking becomes contagious and awareness increases we’d be much better off in our families and our businesses,” says Wickman.

Understand the difference between intent and impact

What one person says often ends up being very different from what another person hears. Acknowledging and understanding the difference between what you intend to communicate and how others might interpret it is powerful. By focusing on this difference we can ask questions like “what do you think I meant, and how did that make you feel?” Mark adds “if we slow our communication to really clarify and understand one another, we would avoid some of these ditches.”

People assign values differently from one another

People value things differently. Some people may place greater value on money, some on the legacy of the business, or others may value the ability to be creative on the job. By understanding how other people assign values we can communicate more clearly and avoid misunderstandings of motivation. “If I speak your language there’s going to be less chance for unnecessary conflict. When we clarify what matters to you and what matters to me, where there is conflict, we may actually be able to find common ground,” says Wickman.

An outside facilitator can help

When family communication seems stalled, an outside facilitator or trusted advisor may help resolve issues. Because this outside party doesn’t have a vested interest in the family dynamics, they can act as an objective voice to share comments and concerns among family members. Mark says “the space created by that third party opens up room so that I can hear something [from another family member] that I couldn’t prior, and vice versa.” In other words, it may be easier to hear certain things from a third party than it is to hear from a sibling, parent or child.

Listen to the complete episode online for more comments and insights on keeping your family business communication on track.

Thank you to Mark Wickman of Family Business Counsel for appearing on the podcast.

As family businesses grow and branches of the family tree spread, an increasing number of family members may have an ownership stake in the enterprise. In most cases the business has become a highly profitable and professionally run organization. Family owners may find themselves in need of services to help manage accumulated wealth, plan philanthropic giving, coordinate family meeting activities, or arrange other financial and personal services. Family offices, which are a professionally managed financial organization formed by a single or multiple families, can be used to manage and support many of these needs.

Here are three key takeaways from the Family Business 360 podcast episode “Family Offices: An Introduction and Leading Practices,” featuring Carol Wachter and Eric Johnson of Deloitte Tax LLP, and Larry Donckers of Progeny 3, Inc. You can also listen to the complete podcast episode online.

When should a family business think about starting a family office?

In general, there a couple of times when it makes good sense to consider a family office. The first is when the family has a liquidity event, such as a sale of a portion of their assets, and they find themselves with cash they would like to invest or use to provide services to family members. The second is when the functions of a family office are already being performed within the operating company and the family wants to structure those functions more formally as a separate entity.

There isn’t a set list of requirements to meet before a family considers establishing a family office but it’s important to look at value of assets, complexity of family structure, and how much control the family wants over family office operations.

Typical family office structures

Family offices can be highly customized for the needs of each family, therefore family offices are defined less by the functions they serve and more by the overall operating structure. Single Family Offices (SFOs) are separate operating entities that are professionally managed to serve a single extended family. SFOs usually require the largest investment of time and resources to establish but provide the family with the greatest level of control over services and function.

Multi-Family Offices (MFOs) can function similarly to SFOs, except they serve the needs of several unrelated families. Joining an MFO usually requires less of investment of time and resources than a traditional SFO, but the family may not have as much control over how the office is run.

Virtual Family Offices (VFOs)  typically occur when a family’s outside advisors work together to perform the functions of a traditional family office, but is not a separate operating entity.

Family offices can deliver a variety of benefits

Family offices can serve a variety of direct and indirect benefits to family businesses. First, they provide a higher level of control over assets and investments, and offer an opportunity to bring services offered by outside providers under the family’s control. Family offices can help a family set up a more formal governance structure and engage family members that don’t work directly for the family’s operating businesses. The family legacy can benefit by a more structured approach to family philanthropy and education.

From a financial standpoint, the family may save by not paying outside firms for services that the family office can take over. Pooling resources may allow a family to make investments that would normally be impossible if each family member were limited to their own individual assets.

Listen to the complete episode on the Family Business 360 podcast for more comments and insights on family offices.

Visit our website for a listing of upcoming Family Business 360 breakfast events.

Thank you to Carol Wachter and Eric Johnson of Deloitte Tax LLP, and Larry Donckers of Progeny 3 Inc. for appearing on the podcast.

 

Children raised in Oregon’s family businesses are one of our community’s greatest resources. Among INC’s 500 fastest-growing private companies just under half were run by entrepreneurs who grew up in a family business.

Whether there is room to return to the business or in starting new businesses, next generation business leaders have learned critical skills for growing Oregon’s economy.

About 25 percent of Oregon State University students grew up in a family business. In fact, 8 percent of these students are shareholders in the family enterprise. I have the opportunity to teach these students each spring term as part of the Family Business Management class at the OSU College of Business.  These students are consistently thoughtful, hardworking and emotionally intelligent young professionals who have much to offer their families, their professions and Oregon.

The seminar format featuring invited guest speakers offers frank discussions from a variety of family business CEOs. These exchanges help students navigate complex career and family issues with helpful insights. Each year a common set of student concerns emerge.

Who will take my work experience seriously if my family’s name is the employer on my resume?

Family business students have more meaningful work experience than their peers do because they are part of the family. Giving young family members appropriately titled positions and delineating responsibilities allows them to document transferable job skills.

How do I work with my cousins who don’t seem serious about the work but have been hired by my family?

Preparation to support the returning business graduate can occur while children are in high school and making post-secondary education decisions. Developing a family employment policy that delineates the requirements of relatives working in the business clarifies expectations and opportunities for a family business career.

One highly talented student did not even consider the family business because of a less committed older cousin. Over the course of the term, she realized, along with her parents, that she had significant contributions to make in leading the family business. They also realized that her cousin would flourish, in a separate division, with his technical skills. The second-generation family team running the business worked to define these roles and contributions based on education, placing the third generation in positions that matched their fullest potential.

How can I have more balance in my life than my parents had in theirs?

Lack of family time is pervasive among students and sometimes reflects their experience of a “missing” parent during their childhood. Visiting CEOs are challenged by this question. Every family business owner meets their family commitments differently. The importance of family harmony should not be overlooked because it will drive the long-term success of the business.

How do I tell my parents that I don’t want to work in the business?

When students honestly examine their experiences, they may realize that they can’t commit to leading the family business if their interests are in other areas. It’s better to have this conversation honestly and early than to build a succession plan based on a promise that will be broken down the road.

Two factors can help in this situation. First, we encourage families to have conversations with their children about their business interests on a regular basis. Interests, and businesses, change over time. The ongoing dialogue removes the high drama and tension associated with a single decision point, often under stressful circumstances.

Also, students can stay connected to the business as shareholders or as part of the advisory board. One of our recent graduates helped his family sell the business after none of the other children were interested. He helped his parents gain more value in the sale of the assets to another family business and honored his grandfather’s legacy in new and related ventures.

Giving young professionals from Oregon’s family businesses the opportunity to plan their entry into the state’s business sector intentionally has longterm rewards. Students appreciate and build on the advantage of their experience. The informed and intentional commitments they make will have lasting impact and honor theie family’s enterprising legacy.