Importance of family owned businesses

by Ian M. Berkowitz

Dr. Joyce Brothers has said, “When you look at your life, the greatest happinesses are family happinesses.”

Desmond Tutu has stated, “You don't choose your family. They are God's gift to you, as you are to them.”

One of our founding fathers, Thomas Jefferson has said, “The happiest moments of my life have been the few which I have passed at home in the bosom of my family,”

However, if you are in a family business, you might see family as F. Scott Fitzgerald has stated, “Family quarrels are bitter things. They don't go by any rules. They're not like aches or wounds; they're more like splits in the skin that won't heal because there's not enough material.”

Over the next few weeks I am going to examine the dynamics of family run businesses, due to the overwhelming numbers of business issues I have seen in our local business community affecting this very large segment of our local business community.

As a business attorney who focuses on buying and selling businesses, I have witnessed first hand the dynamics of business owners struggling with the present and future of their company after spending decades to build it, operate it and earn a very good living from it.

Counseling Clients

Most recently, I have been counseling a client who is the president and CEO of a third generation, Japanese-founded company with roots dating back about 70 years. My client is a woman who is a hands-on mom with three kids and is now taking charge of a multi-million dollar U.S.-based subsidiary operating eight stores in the United States, six stores in Canada and one in the U.K.

For this client, it is important to keep the business in the family, continue to grow the successes of the business and provide for the future for the next generation.

Whether you believe it or not, family-run businesses are in big numbers, they impact the global business community in a major way and are simply not going away. PricewaterhouseCoopers has just published its first global survey on family business. According to the report, family firms have become a dominant form of business structure worldwide, employing millions of people and generating between 35 percent and 65 percent of the gross national product (GNP) of the EU member states and about 40-45 percent of the GNP of North America.

Other facts are equally impressive. Among the companies listed on the Standard & Poor's 500 Index, 34 percent are family businesses. There are 1.2 million husband and wife teams running companies. By 2050, virtually all closely held and family-owned businesses will lose their primary owner to death or retirement. Approximately $10.4 trillion of net worth will be transferred by the year 2040, with $4.8 trillion in the next 20 years. Still think that they are insignificant?

Common Issues

Ironically, all of the issues that family business owners face are common to all types of businesses. In a study conducted on family businesses first reported in the Journal of Accountancy, members of family businesses cited multiple issues of concern when examining their own company. Such issues included: growth planning, organization design, operational effectiveness, leadership/management, compensation, communication, customer service, risk management/succession planning, management and ownership transition and global perspective.

Follow this column over the next few weeks as I examine these issues by sharing with you some of the most recent research conducted on establishing, managing, operating and planning for an exit as it relates to family businesses.

As far as I am concerned, all of these types of issues are current and applicable for all types of businesses, family or not.

Ian M. Berkowitz is a former attorney/advisor with the United States Small Business Administration in Washington D.C. During his tenure with the Federal Government he specifically worked in the areas of disaster relief for homeowners and businesses and government contracting. He is currently a practicing business and real estate attorney in Boca Raton. In addition to his law degree, Ian also holds a Masters Degree in Government from The John Hopkins University.