Chapter 5: Family Business
Chapter 5: Family Business MGT 241 - 1
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This 6 page Class Notes was uploaded by Jackline Kingori on Wednesday October 7, 2015. The Class Notes belongs to MGT 241 - 1 at Ball State University taught by Robert D Mathews (P) in Fall 2015. Since its upload, it has received 172 views. For similar materials see The Entrepreneurial Experience in Business, management at Ball State University.
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Date Created: 10/07/15
Family Business The Great the Good the Bad and the Ugly Chapter 5 Family Business D A rm in which one family owns a business and is involved in the maiority of the business Family Business Facts 92 of all US businesses 39 of all US businesses are small family businesses Employ 58 of US workforce Only 16 of family enterprises make it to a m generation Average life expectancy 24 years of the Standard amp Poor s 500 are family managed and owned Success Attributed to Lack of stockholders Family members sacri ce shortterm pro ts for longterm gains u Flexibility Family Business Advantages Longterm orientation Greater independence Less or no pressure from stock market Family culture as a source of pride Greater resilience in hard times Knowing the business early training for family Less bureaucratic and impersonal Flexibility Faster decision making Family Business Disadvantages Confusing Organization Nepotism tolerance of inept family Spoiled kid syndrome lnternecine Strife Paternalistic autocratic rule Financial Strain disequilibrium between contribution vs compensation Succession dramas n I U i The Ultimate Challenge see slide 0 A healthy business and a healthy family Family Business Challenges D Role con ict The kind of problem that arises when people have multiple responsibilities such as parent and boss and the different responsibilities make different demands on them Whenever possible make decisions based on business necessities Stress is caused mainly through role con ict Family Business Roles Owner Family Member Manager Family Business A Unique Combination Management System Ownership System Family System Pressures and Interests in a Family Business see table in slide ParasitePlunderer Dichotomy see slide The Family Business 0 Comparing a family business to a quotnormalquot business Business Left Brain Enterprise Logical institution Hiring Best resume credentials etc Acceptance Reward merit amp accomplishment Evaluation Regular evaluation amp assessment Change Effective planning Families Right Brain Enterprise quotfrom the gutquot emotional institution Hiring born married adopted Acceptance reward equally Evaluations nonexistent Change resisted The Traditional Parental Trap Equality doesn t equal Fairness Can You Take the Family Out of the Family Business Family Business Succession Longevity Security amp Preservation Transferring Control Emotion vs Logic Secret Parental Planningquot Someday this will be all yoursquot Translation Someday When can no longer put my feet on the ground you can have What s left Types of Succession Plans 1 A healthy vital business vision Strategic Plan 2 A nancially viable transition Estate Plan 3 A successful leadership transition A Succession Plan 4 A longterm commitment A Family Plan Reasons for not letting go Excuses for Not Letting Go Too many people have died soon after retiring or acted like they did Association with death Fear of death Without me the business is nothing I m nothing without the business I need somewhere to 90 something to do The kids want to change the business they will if I m not there I don t want to have to pick a successor The business is my major source of income l have to protect it Nobody can run the business as well as I can Maybe somebody will run the business better than me Family Business Succession Challenges The Survival Issue Owners are too busy keeping the business alive to plan for their own exit Owners do not have con dence in offspring or family replacements Owners do not see family perpetuity as a major concern Succession Approaches Earlyentry Right out of high school or right off the gate working in the business Advantage Early experience Having a mentor Disadvantage Smallminded Not that much experience with other employers Delayed entry I Advantage New experiences More education New mentors and coaches Disadvantage Employees can throw shade if you come back Succession Strategies Contextual Aspects Time Forcing events Death accidents and illness Estate tax 9 months to settle I 4555 This can lead to bankruptcy so get a PLAN Type of Venture Franchise can still go on A specialize companybusiness might have a problem I Capabilities of Managers Entrepreneur s Vision Environmental Factors Economy outside factors Identifying Successor Qualities Business concerns The business environment Stage of the rm s development Traditions and norms Owner concerns Relinquishing power and leadership Keeping family functioning as unit De ning family member future roles Keeping nonfamily resources in rm Family member concerns Gaininglosing control of assets Having control over decisions Protecting interest in ownership Assurance the business will continue Carrying Out the Succession Plan Can only have 1 leader Groom an Heir Learn multiple levels of the business Agree on a Plan Consider outside help Estate Shrinkage of Famous People Who Failed to Plan see slide Estate Planning Key Considerations I Financial Inheritance takeslife Insurance I Outstanding Debts Health of Business Ownership Transfer Gifting Purchasing PrePlanned Purchase Price Trust Family Issues Siblings Greedy Real Estate vs Business Assets Succession Key Considerations I Estate Planning Management Transfer I Family Health Retirement Plan