A few family business considerations for the new year

December 27, 2011
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If you are anything like me, you live and die by the yellow Post-It. These genius creations hold my ideas to be explored later and the “to do” lists that rule my existence. Without the yellow 3M sea, I just might be lost and rudderless. This may sound odd, but as the director of a rapidly growing nonprofit that helps family businesses succeed generation to generation, my board of directors and family business members expect me to keep the organization moving forward. Everyone has their own way of mastering tasks throughout their day, week, month and year.

As a family business leader, you no doubt have attended countless seminars, listened and (hopefully) learned from numerous speakers, and spent many hours in meetings outside of your family business. You may also have a “to do” list that seems to have a life of its own. What items from these seminars and speakers have made it to the top of your list?

With the help of the Family Business Magazine’s recent family business study, I asked a few of the top family business advisors what they would advise their clients to work on in 2012. Bruce Young, partner at Warner Norcross & Judd, states: "In addition to the annual housekeeping matters of electing directors and officers and addressing financial matters, make 2012 a year to tackle some of those seemingly less urgent but very important tasks, such as moving to an effective, engaged board of directors with outside members, or developing a succession plan that addresses ownership, management and family participation. These can be essential for making sure the business survives to the next generation." 

At the Family Business Alliance, we would like to help you start 2012 on a great note. Here is our suggested “to do” list from our trusted advisors and partners:

Give gifts: Bruce Young recommends that family business owners consider gifts using their lifetime gift tax exemption before the end of 2012: "The current $5 million exemption from gift tax is scheduled to drop to $1 million after 2012.  For those in a position to make large gifts, this may be a great opportunity to do so. And as before, gift tax laws permit an owner to make annual exclusion gifts of up to $13,000 to an unlimited number of recipients — this is a great way to keep moving family business interests to younger generations."

Rich Noreen, CPA and partner at BDO, agrees and adds: “Annual exclusion gifts and the direct payment of school tuition and medical expenses are a powerful tool to transfer wealth that can be implemented without a complicated structure.”

Make plans: When looking at successful family businesses, the act of planning is a key component to success. “Develop a strategic business plan and a succession plan,” advises Joe Schmieder of the Family Business Consulting Group.

According to the national family business study in July 2011, only 55 percent of the 421 family business owners who responded stated they had an emergency succession plan if something unexpected happened to the current leader, and more than 50 percent of the respondents are planning to transition their company to the next generation within the next 10 years. It can take up to five to 10 years to successfully transition a business. Planning needs to start today.

Don’t just develop the plan, Noreen recommends: “One trait of many successful business persons is to keep the strategic plan for the business updated to reflect market changes. The same should be done for their estate plans. A good estate plan needs to reflect the long-term vision of the business owner and needs to be revisited on a regular basis.”

Dr. Camille Donnelly, family business consultant for Donnelly Leadership, suggests that when planning “think in terms of sage not age. Using the definition of sage as ‘wise through reflection and experience,’ I find that in innovation, technology and strategic agility, the sages in many family businesses are overlooked because they are defined by age or generation. Recognizing and sharing intergenerational strategic wisdom creates the strongest teams.”

Communicate the plan: Talk about your plan to key leaders in your company and family members, and get everyone involved and on the same page. There are many ways to communicate key components of your plan, including family meetings, newsletters, family website, CEO letters, annual reports and conference calls.

Hold a family meeting: This falls under communication but is so important that it gets its own space. According to the Family Business Magazine study, 52.8 percent of the respondents use family meetings as a tool to communicate with their family. Joe Schmieder, consultant for the Family Business Consulting Group, works with an increasing number of family businesses. He states: “Family meetings are important to share knowledge, update family members on family and business issues, and to have some social/fun time.” Also, family meetings help “develop a greater understanding of the family and the business, which generally leads to greater family harmony.”

Create an outside board of advisors or directors: Schmieder states succinctly: “Bring on independent outside board members.” The Family Business Alliance has had several owners of successful family businesses present throughout the year. The vast majority claim that having non-family members on their board of directors has helped them grow and innovate.

Leadership development for the next generation: The survey question on formal education for the next-generation members interested in working for the company found that only 15.1 percent responded that they had an education policy. Only 26.2 percent had a formal policy requiring family members wanting to work in the family business to have post-degree work experience elsewhere. Many family businesses in West Michigan have a formal policy for their next generation requiring a college degree, outside work experience and relevant work experience for the job opening within the family firm.

After you have hired a family member, remember to set realistic expectations. One way to do this is by having the next generation take ownership. What do they think they need to be an effective leader/employee?

Other questions to consider: What type of legacy would you like to leave? What are your values as a family (enterprise)? What employment policies do you have in place for family members? And, does your family give philanthropically together?

Some of these ideas have restrictions or other considerations that should be taken into account. You may want to consult your professional advisors before acting. The important thing is to get started with one of these activities in the next month and then move on to another. And don’t forget to get your family involved!

Ellie Frey is director of the Family Business Alliance (www.FBAgr.org), a nonprofit resource and collaboration between the family business community, GVSU's Seidman College of Business, and the Grand Rapids Area Chamber of Commerce. She can be reached at Ellie@FBAgr.org or (616) 331-6827.

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