family business challenge
DESCRIPTION
The challenge of transitioning a family owned business.TRANSCRIPT
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The Family Business Dilemma
The challenge of building, growing and leaving business wealth
BROWNSTONE Capital Advisors LLC
BROWNSTONE
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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
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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!
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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” …
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Start-Up
Growth
MaturityRenewal
Decline
Business Life Cycle
Personal Life Cycle
Business Life Cycle
BROWNSTONE
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Start-Up
Growth
Maturity
Renewal
Decline
Business Life Cycle
HIGH INCOME –
LOW VALUE
BROWNSTONE
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The Challenge of Family Transition
BROWNSTONE
Family Owned Business Survey …
88% …
Transition to family successors
2003 Mass Mutual Survey
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The Challenge of Family Transition
BROWNSTONE
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
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The Challenge of Family Transition
BROWNSTONE
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 …
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Business Wealth and Wealth
BROWNSTONE
70% … failure … Creator to Successor
85% … failure … 2nd Gen to 3rd Gen
94% … failure … 3rd Gen to 4th Gen
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Business Wealth and Wealth
BROWNSTONE
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.
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Business Wealth and Wealth
BROWNSTONE
Worldwide phenomena …
• “Shirtsleeves to shirtsleeves in three generations”
• “Rice bowl to rice bowl …”
• “Clogs to clogs …”
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Business Wealth and Wealth
BROWNSTONE
Chinese saying …
Wealth never survives
three generations
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Top Level Reasons
BROWNSTONE
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
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An Inconvenient Truth
BROWNSTONE
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
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What Are the Reasons?
BROWNSTONE
Poor tax minimization strategies …
Poorly designed estate plans …
First Conclusion:
The Accountants and Estate Planning Attorneys are doing a great job!
4%4%
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What Are the Reasons?
BROWNSTONE
1. A breakdown of Communications and Trust within the Family Unit
Communication = Consists of two root words: common and action
Common action brings alignment
Trust = Consists of three main components
1. Reliability: Do you do what you say you will?
2. Sincerity: Are you becoming whom you should?
3. Competence: Can you accomplish the task at hand?
b
60%
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What Are the Reasons?
BROWNSTONE
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.”
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What About Successful Transitions?
BROWNSTONE
1. Total Family Involvement
2. A Process that Integrates Decisions
3. Learning and Practicing New Skills
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What’s the First Step?
BROWNSTONE
Family Mission Statement:
What is Our Shared?
Purpose of Wealth?
For what Purpose has our Family been so Blessed?
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Contact
BROWNSTONE
Paul Brown, Managing Principal
Phone: 509-926-6922 (direct)
E-Mail: [email protected]
URL: www.brownstonecap.com