Family Businesses Can Be Vulnerable Too

by Deidre Woollard (RSS feed)
Jun 24th 2008 at 4:01PM

The importance of family-owned businesses in terms of the economy is pretty amazing. A full 68 percent of businesses are in private hands. Many of those family businesses however, don't have a succession plan in place, even when there are millions of dollars at stake. A new study, "Protecting the Family Fortune" sponsored by U.S. Trust, Bank of America Private Wealth Management finds that the majority of owners of ultra-high-net-worth family businesses haven't fully prepared for the future when it comes to business succession, asset protection and estate planning.

The ultra-high-net-worth businesses surveyed in the report have interests valued at a minimum of $300 million and had already successfully transitioned from the first to at least the second generation. The majority of these family businesses have wealth transfer plans in place and yet most of these plans have lapsed. A majority (89%) of these wealthy business owners were "very" or "extremely concerned" about protecting the family's wealth but nearly three quarters (73%) of them do not have asset protection plans in place.

Most of the business owners are also very worried about personal security, believing that their level of wealth makes them a target. The survey also found that while most had many stresses which affect their personal and professional lives, overall 64% of the affluent family business owners are personally very happy with their lives. The study did find that those who consider themselves "highly centered" are overall in a much better place in life and the report found that one of the best ways to protect the family fortune is actually to manage stress in a positive way.

When it comes to succession, many business owners seem to have more of a wish than a plan. Four out of five businesses want to pass the business on in the family but some are interested in selling, either to cash out or because they have no suitable family members to pass the business on to. Also four out of five of the business owners surveyed had a personal estate plan but in some cases the plan was more than a few years old or hadn't been updated to reflect a life change such as a marriage or divorce. Many of the businesses also didn't have asset protection plans in place to protect them in the case of lawsuits or other unforeseen problems.

The bottom line of is that the wealthy family business owner, though in general more prepared for the vicissitudes of fate than those with less money at stake, is still vulnerable. It's not really a big surprise, certainly a wealth management organization conducts a survey like this because they can guess the outcome that more financial planning is necessary. But it is a reminder that while wealth may seem to impart a feeling of invincibility, it can also make individuals, families and businesses vulnerable to new threats they may not have anticipated.

Tags: family, fortune, money, us trust, UsTrust, wealth

Source

Subscribe to these comments

Reader Comments (Page 1 of 1)

Thomas William Deans Jun 25th 2008 10:15AM

The US Bank of America Study was long overdue. With an unprecedented number of ageing family business owners the study has put the spotlight on an often ignored subject -- family business succession planning. The study notes that four out of five family business owners would like to pass their business on to a family member. It is here that most family business owners stumble. Many business owners, as the study suggest, simply don't formalize or update their plans and the owneship of the business gets dealt with at the estate level when the controlling shareholder dies. In effect the family business gets "gifted". In my new book, Every Family's Business, I argue that gifting operating businesses is one the biggest mistakes that families can make--one the surest ways of destroying family relationships and family wealth and not usually in that order. Instead I argue in my book that family businesses should be purchased, that the very act of risking capital by the succeeding generation is critical to the future success of the business and its leadersip. In significant family businesses, wealth can be gifted to the succeeding generation to fund the purchase. This gifted wealth still represents a risk of capital since the recipient is forgoing the personal consumption of that wealth or its investment in firms outside of family control. when this critical stp is taken the succeeding generation has taken an important step to invest their monetary capital and human capital to lead the family business as a true "owner" --one that has risked his capital. The business is poised for success. All too often families fail to plan or simply gift the ownership of their business to the next generation. How many more examples do we need to underscore the point that families with signficant wealth should gift their wealth not operating companies? If children in a family business express no interest in aquiring their parent's family business the business should explore its sale to a third party. When businesses are gifted to disintrested children that have taken "a pass" on owning a business the seeds of wealth destruction have been planted. When succession planning doesn't get done or when families gift businesses to their children through planning neglect, the outcome is predictable: family's destroy their wealth, their reputation, employees lose their jobs, lenders lose their capital, suppliers lose their customers and America loses an opportunity to sustain the most successful wealth creation organization on the planet --the family business.

Thomas William Deans
Author
Every Family's Busniess: A Blueprint for Protecting Family Business Wealth

www.ProtectingFamilyBusiness Wealth.com