Running the Family-Owned Business

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Family-owned businesses offer certain advantages not always available in larger publicly-held businesses. These advantages generally include close contact with upper management, less bureaucracy, built-in trust among officers, board members and shareholders, and the opportunity for hands-on training, mentoring and early exposure of the younger generation to the business.

Family-owned businesses also present certain unique challenges. In particular, family-owned businesses often have problems with succession. These succession problems can often be tied to inadequate training of the younger generation, family rivalries and jealousies, inadequate communication between family members and lack of planning. These succession problems can also occur when the senior generation does not allow the younger generation the opportunity to grow (and make mistakes), develop, and at some point assume a leadership role in the business.

Most successful family-owned businesses have clearly defined roles and responsibilities for family-members. Most successful family-owned businesses also do a thorough job training and preparing the younger generation to assume leadership positions. This can include job shadowing where the younger generation hears, sees, and absorbs the actions of a mentor in the actual business environment. Many family-owned businesses span multiple generations.

These family-owned businesses can be quite complicated to run smoothly as multiple generations interact in running the business. These family-owned businesses can be even more complicated to run when in-laws are involved. Planning is critical for any business. But careful planning is even more crucial to the family-owned business because many families have all or most of their assets tied up in the business. Personal estate and family planning therefore gets intertwined and inter-woven with succession and business planning.

Owners of family-owned businesses need to carefully plan to move assets where they are needed for family reasons, while minimizing transfer taxes and preserving necessary resources within the business. Business, estate and succession planning can be overseen by the company’s Board of Directors, an advisory panel, or other professional advisors. It is important for owners of a family-owned business to ask and answer the hard questions. Who should be in charge 5, 10, or 20 years from now? Does my son or daughter have what it takes to run this business successfully? Are there employees in the business who could help lead the business profitably? Do we have the time to train and develop the next generation? Are there vendors or customers who would be interested in buying part or all of the business?

If you would like to meet with one of our business and tax attorneys to discuss succession planning or any other aspect of your family-owned business, please contact me at 937-223-1130 or Jsenney@pselaw.com.


AND ONE MORE THING. The Ohio legislature released a proposed resolution of the tax differences in House Bill 59. Under this proposed resolution, most Ohioans would pay less income tax, while paying more property and sales taxes. More on this as it develops. Call or email me at 937-223-1130 or Jsenney@pselaw.com with any questions about state or federal tax issues.