Keeping It In The Family Part 2

Oct 2, 2012

Family businesses are arguably at the heart of the American economy, and yet there’s little recognition of their contribution. In the second of our series, WNPR’s Harriet Jones reports on the unique challenges facing families that go into business together.

Just how important are family businesses to the economy?

“There are statistics that say that family businesses comprise 80 to 90% of the business entities throughout the country.”

That’s Mark Soycher of the Connecticut Business and Industry Association. He says the trouble with family businesses is that sometimes they’re invisible.

“CBIA has been involved with family businesses for as long as we’ve been in business, at times not realizing. Family business ownership is something that some companies choose to wear on their sleeve, but in other cases it’s an element in the background.”

Despite estimates that say family businesses may be responsible for us much as 60% of employment in the U.S. and a similar amount of the gross national product, there’s no government designation for what constitutes a family business, and there’s no official assistance available as there is for women and minority owned businesses. So what do they have in common? More than you’d think, says Paul Sessions. He runs the Center for Family Business at the University of New Haven.

“What we’ve discovered is that people in family businesses very often feel alone. They feel like the issues that they’re facing are theirs and unique.”

Sessions runs seven major conferences each year for his 50 or so members, bringing them together to talk to each other about issues like succession planning – how to pass the business from one generation to another - or about how family conflicts can complicate business relationships.

“But you get the company that’s got $300 million in revenues and one that’s got $2 million in revenues sitting at the same table, talking about the same issues, because that’s the commonality here.”

Sessions says the primary mistake made by many initially successful family businesses is assuming that the kids will take over when the time comes.

“The hardest thing to do is to mentor your child, because you’ve got too many axes to grind, you’ve got too much of an investment. So it’s hard sometimes for father and mothers to teach their children what they really need to know.”

Succession planning may also involve many things beyond just training up the new generation – it also requires careful financial stewardship and an acute awareness of the changing rules on estate and gift taxes.

“Only 30% of family businesses make it to the second generation. Only one of those three businesses make it to the third generation. And only three to four percent make it beyond the third generation. That’s a real concern. Now business get sold, businesses fail, and those sorts of things obviously, but a lot of them don’t plan.”

CBIA’s Mark Soycher says the government could also provide external help in the stewardship of this important economic resource.

“I think there are some ways within existing tax and other regulatory provisions, that elements unique to family businesses could be treated in a manner that would facilitate their preserving the assets of the business and enabling it to be transferred from one generation to the next.”

CBIA is beginning its own initiative to connect family businesses with service providers and educational resources. Soycher says despite the vulnerabilities of family businesses, they do have a unique flexibility and personal commitment that can help them weather a tough economy. 

“Family businesses are also driven by much more than just profits. They see a historical sense to their presence, and recognize that it’s not just making a budget in the next calendar quarter, but looking two, three, five, ten years, or a generation down the road.”

Paul Sessions at the University of New Haven agrees. He says family businesses are a national resource worthy of greater recognition.

“Family business and the longevity of family business is very much in the economic interest of this country, without question.”

For WNPR, I’m Harriet Jones.