2-1 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Chapter Family-Owned Business Organizing/Operating Family-Owned Business Family Relationships & Business Preparing For Succession & The Next Generation Tax/Estate Planning 2-2 Family & Business Written Mission Statement Include Children In Decisions Family Discussions 2-3 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Family Mission Statement Start From Trust/Openness Unanimous Agreement On Values & Vision Copies To All Avoid: Rushing Family Favoring An Agenda Forgetting Purpose Photodisc 2-4 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Trends In Family Business Kids Start Business & Get Capital From Parents Parent Given Executive Position Spouses Working Together- Service Businesses With Technology Needs Clear Chain Of Command Royalty-Free/CORBIS 2-5 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Tips For Spousal Ownership Monica Lau/Getty Images 2-6 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Daughters Considering Succession To Family Business ♀Express Interest ♀Get Involved ♀Outside Experience ♀Meet Women ♀Learn From ♀Define Yourself Seniors ♀Develop A Vision ♀Be Sensitive Royalty-Free/CORBIS 2-7 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Successful Family Interaction Founder = Head Some Family In High Positions Incur “Sense Of Ownership” Deal With Incompetents Compensate Recognize Limitations 2-8 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Steps In Divorce Business Appraisal Negotiate Buyout Decide What To Do With Stock Seek Tax Professionals 2-9 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Family Culture & Business Large Families Stay-At-Home Mom Develop Hobbies As Working Business Moms Establish Business Keith Brofsky/Getty Images Economy More Difficult Need Additional Income Large Business No Longer FamilyFriendly 2-10 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Succession Planning Obstacles: Family Spouse’s Role In Business Reluctance To Discuss Future Beyond Parents’ Fairness vs Favoritism Life Jack Hollingsworth/Getty Images Fear Of Parents’ Death Source: Family Business Experts, www.familybusinessexperts.com 2-16 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Succession Planning Obstacles: Employees Personal Relationship With Founder Differentiating Amongst Key Managers Reluctance To Establish Formal Controls Fear Of Change Royalty-Free/CORBIS Source: Family Business Experts, www.familybusinessexperts.com 2-17 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Succession Planning Obstacles: Outsiders Customers & Suppliers Dependence On Founder Trust/Confidence In Royalty-Free/CORBIS Potential Successor Source: Family Business Experts, www.familybusinessexperts.com 2-18 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Causes Of Succession Family Leader: Sudden Departure Dies Becomes Incapacitated Planned Departure Leaves Company Royalty-Free/CORBIS \ Retires 2-19 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Family Leader: Replacement Options 2-20 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Selling To Family Members- Advantages Stays In Family Source Of Family Employment Stature Maintained Owner = Relax Pleasure Of Success Strengthen Family 2-21 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Selling To Outsiders- Advantages Assured Income Lack Of Worry Consult? Release Tension Relief Of Responsibility 2-22 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Selling To Outsiders- Disadvantages Loss Of Family ID Loss = Sadness Greg Kuchik/Getty Images 2-23 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Ease The Transition For Owner Broaden Focus Devote Time To: Hobbies Doug Menuez/Getty Images Other Groups Gradually Turn Over Control 2-24 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Estate Planning Issues Minimize Taxes Retain Control Maintain Business Steven Cole/Getty Images Flexibility 2-25 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Inc 500 CEOs’ Net Worth Source: Inc Magazine, “Compensation”, November 2004 2-26 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved INC 500 CEOs’ Take-Home Pay Source: Inc Magazine, “Compensation”, November 2004 2-27 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Financial Planning Tax - Annual Conferences With Tax Accountant Estate – Transfer Of Assets At Death Perpetuation Liquidity Business Standpoint Reduce Cash Strain Maintain Beneficiaries’ Interest Keith Brofsky/Getty Images Smooth Transition 2-28 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Estate Planning Techniques Gifts Stock Sales Living Trusts Family Limited Partnerships Minimize Cost Retain Control PhotoLink/Getty Images Buy/Sell Agreement 2-29 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved Business Valuation Comparables Earnings Capitalization Book Value 2-30 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc All rights reserved ... Family-Owned Business Organizing/Operating Family-Owned Business Family Relationships & Business Preparing For Succession & The Next Generation Tax/Estate Planning 2-2 Family & Business Written... rights reserved Trends In Family Business Kids Start Business & Get Capital From Parents Parent Given Executive Position Spouses Working Together- Service Businesses With Technology Needs Clear... Stay-At-Home Mom Develop Hobbies As Working Business Moms Establish Business Keith Brofsky/Getty Images Economy More Difficult Need Additional Income Large Business No Longer FamilyFriendly 2-10