Health, Wealth and the Fiscal Cliff

Along with succession planning, both estate planning and wealth planning are critical to the success of a multi-generational family enterprise. Succession and estate planning are the two primary topics family business owners procrastinate most on.

While what will become of the estate tax next year is uncertain, it can be safely assumed that it will go up.  The current rate is 35% with an exemption of $5 million ($10 m for couples).  Restoring rates of 2009 would increase the rate to 45% with exemptions of $3.5 million ($7 m for couples). If congress does not act it will automatically return to the pre-2001 rates of 55% with exemptions of $1 million ($2 m for couples)

The challenge with estate taxes in family businesses it that often the cash available to family members is tied up in the business; and the next time the next generation has to liquidate the business to pay the estate tax will not be a first.

I know none of you are planning to die early to avoid a higher tax rate next year, and that this is a topic most of us would rather not have. There are actions you should take now, however, to not only minimize your children’s tax bill also provide resources for them to lead when they take over the business. Guidance from an (your) estate attorney, CPA, and financial advisor are needed to do the proper planning.

The Little Red Book of Family Business

“The fundamental task of parents is to raise responsible adults who have high self-esteem and can function independently in this world,” David Bork, The Little Red Book of Family Business.

The Family Firm Institute, a professional organization for individuals involved in family businesses have a list of recommended books on family businesses. The Little Red Book of Family Business is one of them. It is a pocket-sized book of wisdom about the complex and rewarding world of family businesses.

The advice in the book was culled from the author’s 40+ years of experience working as a family business counselor, covering topics such as family-work boundaries, competence, competition, being rich, sibling relationships, and spousal roles. Each point is brief, to-the-point, insightful and sometimes humorous. Their strength is probably as a conversation-starter for an indepth dialogue with family members.

The main focus of the book is helping owners manage their families rather than their business. Interference in business decisions, double standards in employment, and succession wars can make families the worst enemies of their own businesses.

Some of the advice from Bork includes:

• If the business does not prosper, the family will not be prosperous
• Money is a tool, but it should never be used as a hammer
• If the family ownership is used in marketing, then it is important for all family members to practice the values the family claims to have, and
• Sparking solitary soul-searching- from the section on wills: "Don't try to legislate from 'the other side.'”

Bork's red book doesn't provide a solution to every problem, nor does it claim to. "This is a little book, not a big one," he writes. But its pithy phrases provide a benchmark for determining the strengths and weaknesses of a family's relationship with their business.

Available from Amazon and other book sellers.

When Family Issues Overflow Into the Business

In the midst of a fullstaff meeting Jim’s father turned to him and announced loud enough for all to hear, “You’ll never havewhat it takes to run this business.”


When familyissues overflow into the business it hurts the business, the employees as wellas all family members, jeopardizing the sustainability of the family and thebusiness.

Family businessesprovide a unique cultural and economic tapestry within our society. Planning,starting with an end in mind of how the wealth within the business and familywill transition to the next generations, creates greater well-being within thefamily from one generation to the next.

Most programs and training of business owners and entrepreneurs, however, stop with maximizing the growthof the business - short of achieving the sustainability of the family and thebusiness.


The fact is, though, family-business Best Management Practices, whichsupport the growth of the business, grow the estate of the shareholders,promote the health and well-being of family members, and increase familyharmony, can be learned.

About Family Businesses

Family-owned businesses are a unique and integral component of our economy with distinct competitive advantages over non-family, management-based businesses.

There are, in family businesses, like in entrepreneurial businesses, concentrated ownership structures with overlapping responsibilities of management that enable speed in decision-making and “getting to market.” Family businesses, however, benefit further from its single family-ownership-management interaction.

A desire to protect the family name translates into high product and service quality, and a higher return on investments, which being a high-quality leader produces. Sons and daughters growing up in the business develop a deep understanding of the history and culture of the family firm as well as of the industry, the market, and the products. They watch leadership in action and decisions being made; they learn the benefits of patient money; and they develop a vision towards generations into the future.

Yet, while family businesses account for approximately 85% of all businesses in America, less than 30% survive to the second generation and 10% may make it into the third generation.

The problem is that most business owners have never participated in a succession process before. They started as an entrepreneurial business and grew into a family business. The focus has been on their growth; and they are unaware of best management practices of “family” in a family business. And, like most, passing it on some day - not being a part of the business - is not part of their thinking.

Children may participate in the business to help out, and stay because it is the path of least resistance. Perhaps they are expected to, or are needed. Or it becomes assumed that they will take it over, whether they are best suited or not, whether they want to or not. Or whether the founder is ready to leave or not.

The challenges to succession in a family business grow more complex as the business and family grows. Handing over the keys one day without consideration to nepotism, fairness, sibling rivalries, non-family members working in the business, birthright, estate planning, and an understanding of how the family operates in the context of the business is a prescription for failure.

The heads of family businesses should care. They have a number of unique competitive advantages, and when developed with a perspective of the next generation can become a very powerful force supporting the family and serving the community in which it operates, for generations.

Like everything else - your business, your investments, and a vacation benefit from planning. As the founder you may be struggling with how to leave, no clear successor, what’s next for you, or what this means to you, the business and the family; and as a sibling you may be encountering responsibility without authority, shareholder second-guessing, or sibling rivalry.

Needed are clarity on the goals, identification of the alternatives, and understanding of steps to get there, and the means to discuss them with the family and the managers of the business.

I grew up in a third-generation family construction business. In my business I work with the heads and next generation siblings of family businesses on developing the relationships and implementing family business best management practices to help them grow their business across generations. Last year I started teaching, as an adjunct professor, Family Business Management in the Zicklin School of Business, Baruch College, City University of New York. More importantly I have begun working with my siblings – all who are small business owners and self employed – to use our collective experience, knowledge and resources to benefit our children in generations to come.

Leadership Succession

At some point all successful organizations encounter the challenge of key people retiring. Whether they are part of the leadership team or the head of a family business, planning a successful and seamless leadership transition is a major challenge.

Succession planning can be one of the most important processes to ensure the legacy of the organization. Mentoring and leadership programs help potential successors develop their skills, and are useful to the existing leadership in selecting successors. The challenge, however, goes beyond identifying who receives the new leadership mantle. The organizational knowledge, embodied in team leaders and developed over time, is critical for the long-term success, and needs to be conveyed from generation of leader to generation of leader.

Organizational knowledge, unlike data or information, exists within people. This knowledge is derived from their experiences, and it includes elements key to the organization's success, such as judgment, values and insights. Most importantly, in a succession process, you need to recognize that this knowledge is not easily replaced.

Often, in the selection of a successor, it can take many years to tap into individuals who have the requisite skills and abilities to replace the CEO or a long-tenured employee. The process can be expedited, however, by thoughtfully transferring this knowledge from the current incumbent to the next generation; and the more time and energy that is invested into the knowledge transfer process, the more likely the success of the successor.

The process requires understanding the intellectual capital and competencies needed to lead the organization. It is also requires knowing where the gaps are, understanding the vulnerabilities that could inhibit a good succession process, and, of course, developing specific strategies and mechanisms to close the gaps.

Ultimately, the leader's role is to take the organization into the future; and in that sense it is one of stewardship, of continuing the health and viability of the organization for the next generation.

A transition process presents an exciting opportunity for a firm to develop new competencies. The next-generation of leaders bring complementary skills and perspectives that can be precisely what your business needs as it seeks to update itself and to continually create value for its customers over time.

And what do the future leaders look like? There are characteristics that you want to look for and nurture in people vying for the next chapter of leadership. You will see in them that:

· They love the nature of the business

· They know themselves, and their strengths and weaknesses

· They want to lead and serve

· They have good relationships and the ability to accommodate others, especially if part of a successor team

· They have earned respect of employees, suppliers, customers, and other leadership team members

· Their skills and abilities fit the strategic needs of the business not only for this time and place, but also for expected future needs

· They respect the past and focus their energies on the future of the business and the industry

The current leadership, in addition to having responsibility for the profitable growth of the firm, also needs to see themselves as stewards carrying the organization into the future, developing and preparing the next generation of leaders to lead.