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Ownership, Succession and Family

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Smith Family Business Initiative at Cornell
Smith Family Business Initiative at Cornell

Every business founder will be faced with the same decision at some point – “How do I exit this business I have created (or inherited)?” Nearly half of all business failures are precipitated by the owner’s death. Regardless of what stage your business or practice is at, thoughtful planning and communication with your family and business are critical components in a smooth business succession. Understanding how business, ownership and family are often interwoven is one pathway to success in any business transition process.

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Business, Ownership and Family Cornell University College of Veterinary Medicine Ithaca, NY April 27, 2015
Quiz What is a family business?
Perceptions…
Ownership, Succession and Family
Succession Checklist Definition of a family business? • Ownership control (>15%) by family or partnership of families • Strategic influence by family members on the management of the firm • Concern for family relationships • The dream (or possibility) of continuity across generations Poza, 2007
Ownership, Succession and Family
Ownership, Succession and Family
The ultimate aim of ANY business is… VALUE CREATION!
What makes family business unique? • Presence of family • Owners dream to keep in family • Overlap of – Family – Ownership – Employment • Unique sources of competitive advantage
The Family Business 3-circle model Family Business Ownership Tagiuri & Davis (1982)
Unique challenges facing family business • Unqualified family members in key positions within the company. • Communication of business issues is difficult enough, however layered with challenging family matters, often communication completely breaks down. • Marriage and divorce plays a key role in family business success and failure. • Involvement of family members not employed by the company. • Family members in ownership versus management positions.
Why family business? • 77% of all new business ventures established in the United States are founded with significant involvement of the family in the business. • The public views small business as most trust- worthy when it comes to spending efficiency. Federal government is viewed as least efficient. • 73% people say they trust a family business, however, that number tends to decline after an ownership transition.
Family Business Facts • 36.7 % have written strategic plan • Of those staying in family, 85% have selected a family member to lead in next generation • 71% of companies have no qualifications for family employment • 54% have shareholder agreements (“buy-sell”) • 38% have liquidity plan • More than 50% have regular formal valuations • Boards in less than 50% cases meet more than once or twice a year
The Bad News • In their first 5 years of operation, approximately 85% of entrepreneurial and family-owned companies disappear • Among those that survive, only 30% are successfully transferred to the second generation of the founding-family owners • Only 12% survive under current ownership to the third generation • Only 3% of all family businesses survive into the fourth generation level and beyond.
Family … meet Business
Case Richard, Sr. 64 Founder CEO, DVM Ann 60 Bookkeeper State senator Grace 39 DVM 50% owner Megann 35 MBA, JD 0% owner Richard, Jr. 31 DVM 0 % owner
Governance 1. Do we need directors outside the family? 2. Are there skills and expertise that do not exist within the family or board that would be beneficial to add to the board (e.g. IT, marketing, strategic planning, financial, etc.)? 3. What family members get a seat at the table and who doesn’t (e.g. minority shareholders, family members outside of the business with minority stakes or others with no desire to serve on the board)? 4. Are there advisers out there who could add value or expertise and an outside perspective without being on the board itself?
Family & Business Governance Family Business Ownership Tagiuri & Davis (1982) • Family meetings • Family council • Family office • Board of Advisors • Board of Directors • Family office • Manage- ment team • All company meetings • Conduit to BOD
Veterinary ownership is harder than it used to be
Meet Dr. Vitulli • Five locations and counting • Family owned florist shops growing up • Shared leadership and role clarification have been critical to growth • Vitulli says, “The key to success, was finding the right people to partner with.” • Cornell DVM ‘91
Preparing for Succession • Regularly have a qualified professional analyze the clinic’s free cash flow. Is it realistic to think that a bank would lend money to someone interested in your practice? • Advise your team that you’re beginning a ”long-term search” for a successor so they don’t get edgy when you have potential associates or buyers in to look over your hospital. • Spend a few dollars keeping the inside and outside of the building nice. Your clients may tolerate a “vintage” look but potential buyers are more likely to want good curb appeal. • Maximize contributions to tax-qualified savings such as IRAs and your 401(k) plan. Prepare for the chance that your hospital may not sell for the amount you need to fund retirement. • Scan the available information on possible clinic purchasers. Might you cultivate a young competitor nearby? Does anybody at church or your favorite watering hole have a relative in veterinary school? NETWORK. • Get to know the secretary at the nearest veterinary school admissions office. If an acceptance letter is headed to a kid in your town, four years later it might turn into an available associate. After that, who knows?
Three reasons to plan early …for your (business) exit 1. You’re not immortal 2. You could burn out 3. Buyers might not love your small town Christopher J. Allen, DVM, JD
Rethinking the way we teach veterinary medicine “Online modules containing consistent, high-caliber finance and business information taught by well-qualified professionals should be a requirement in veterinary education. Additionally, students should be required to study the various business models they encounter during their education, e.g. teaching hospitals, private practices, corporations and government organizations. Solid finance and business acuity is essential to the economic success of all veterinarians, irrespective of employment setting.”
“If there is one piece of advice we would give to all family firms dealing with succession, it is: communicate.” Chrisman, Chua & Sharma One Word
Succession Checklist Discussion 1. What excites you most about ownership? 2. What concerns you? 3. What role will your family play in: • Your business / career choices? • Your business ownership? • Your business succession?
Succession Checklist Connect

More Related Content

Ownership, Succession and Family

  • 1. Business, Ownership and Family Cornell University College of Veterinary Medicine Ithaca, NY April 27, 2015
  • 2. Quiz What is a family business?
  • 5. Succession Checklist Definition of a family business? • Ownership control (>15%) by family or partnership of families • Strategic influence by family members on the management of the firm • Concern for family relationships • The dream (or possibility) of continuity across generations Poza, 2007
  • 8. The ultimate aim of ANY business is… VALUE CREATION!
  • 9. What makes family business unique? • Presence of family • Owners dream to keep in family • Overlap of – Family – Ownership – Employment • Unique sources of competitive advantage
  • 10. The Family Business 3-circle model Family Business Ownership Tagiuri & Davis (1982)
  • 11. Unique challenges facing family business • Unqualified family members in key positions within the company. • Communication of business issues is difficult enough, however layered with challenging family matters, often communication completely breaks down. • Marriage and divorce plays a key role in family business success and failure. • Involvement of family members not employed by the company. • Family members in ownership versus management positions.
  • 12. Why family business? • 77% of all new business ventures established in the United States are founded with significant involvement of the family in the business. • The public views small business as most trust- worthy when it comes to spending efficiency. Federal government is viewed as least efficient. • 73% people say they trust a family business, however, that number tends to decline after an ownership transition.
  • 13. Family Business Facts • 36.7 % have written strategic plan • Of those staying in family, 85% have selected a family member to lead in next generation • 71% of companies have no qualifications for family employment • 54% have shareholder agreements (“buy-sell”) • 38% have liquidity plan • More than 50% have regular formal valuations • Boards in less than 50% cases meet more than once or twice a year
  • 14. The Bad News • In their first 5 years of operation, approximately 85% of entrepreneurial and family-owned companies disappear • Among those that survive, only 30% are successfully transferred to the second generation of the founding-family owners • Only 12% survive under current ownership to the third generation • Only 3% of all family businesses survive into the fourth generation level and beyond.
  • 16. Case Richard, Sr. 64 Founder CEO, DVM Ann 60 Bookkeeper State senator Grace 39 DVM 50% owner Megann 35 MBA, JD 0% owner Richard, Jr. 31 DVM 0 % owner
  • 17. Governance 1. Do we need directors outside the family? 2. Are there skills and expertise that do not exist within the family or board that would be beneficial to add to the board (e.g. IT, marketing, strategic planning, financial, etc.)? 3. What family members get a seat at the table and who doesn’t (e.g. minority shareholders, family members outside of the business with minority stakes or others with no desire to serve on the board)? 4. Are there advisers out there who could add value or expertise and an outside perspective without being on the board itself?
  • 18. Family & Business Governance Family Business Ownership Tagiuri & Davis (1982) • Family meetings • Family council • Family office • Board of Advisors • Board of Directors • Family office • Manage- ment team • All company meetings • Conduit to BOD
  • 19. Veterinary ownership is harder than it used to be
  • 20. Meet Dr. Vitulli • Five locations and counting • Family owned florist shops growing up • Shared leadership and role clarification have been critical to growth • Vitulli says, “The key to success, was finding the right people to partner with.” • Cornell DVM ‘91
  • 21. Preparing for Succession • Regularly have a qualified professional analyze the clinic’s free cash flow. Is it realistic to think that a bank would lend money to someone interested in your practice? • Advise your team that you’re beginning a ”long-term search” for a successor so they don’t get edgy when you have potential associates or buyers in to look over your hospital. • Spend a few dollars keeping the inside and outside of the building nice. Your clients may tolerate a “vintage” look but potential buyers are more likely to want good curb appeal. • Maximize contributions to tax-qualified savings such as IRAs and your 401(k) plan. Prepare for the chance that your hospital may not sell for the amount you need to fund retirement. • Scan the available information on possible clinic purchasers. Might you cultivate a young competitor nearby? Does anybody at church or your favorite watering hole have a relative in veterinary school? NETWORK. • Get to know the secretary at the nearest veterinary school admissions office. If an acceptance letter is headed to a kid in your town, four years later it might turn into an available associate. After that, who knows?
  • 22. Three reasons to plan early …for your (business) exit 1. You’re not immortal 2. You could burn out 3. Buyers might not love your small town Christopher J. Allen, DVM, JD
  • 23. Rethinking the way we teach veterinary medicine “Online modules containing consistent, high-caliber finance and business information taught by well-qualified professionals should be a requirement in veterinary education. Additionally, students should be required to study the various business models they encounter during their education, e.g. teaching hospitals, private practices, corporations and government organizations. Solid finance and business acuity is essential to the economic success of all veterinarians, irrespective of employment setting.”
  • 24. “If there is one piece of advice we would give to all family firms dealing with succession, it is: communicate.” Chrisman, Chua & Sharma One Word
  • 25. Succession Checklist Discussion 1. What excites you most about ownership? 2. What concerns you? 3. What role will your family play in: • Your business / career choices? • Your business ownership? • Your business succession?

Editor's Notes

  1. Common perceptions: Mom and pop type stores Conflict and fighting Mafia
  2. Family business or not, we can ALL relate to this one.
  3. Nearly 21 different definitions of family business in a recent review of 250 research articles
  4. The graduating class of physicians two years ago had just 1 percent decided to own a practice. The rest of them chose to work for corporations, citing the difficulties of ownership. 
  5. April 22, 2015 - Craig Woloshyn, DVM http://veterinarybusiness.dvm360.com/semi-retired-owner-confronts-challenges-facing-veterinary-medicine DVMs consistently ranked in the top five most-respected professions. Then in 2007, we disappeared from the polls. An entire profession deleted from the public’s interest.  Our devolution into a low-cost profession sets us apart from all others, and it’s no surprise that the public believes a little Internet research and a trip to the feed store will fix Rex. We haven’t given the public enough reasons to trust and value us. Our problem is, we’ve failed to hold up the “value received” part of the economic equation, making us less relevant and necessary to the public. Our role as experts is eroding.
  6. The family business offers three separate but connected systems of family, ownership and business with uncertain boundaries, different rules, and differing roles
  7. Richard, Sr. – A type personality, may never retire, business is like a fourth child Ann – faithful and good employee, tries to keep the peace, perhaps more interested in political office Grace – married, two children, bread winner (husband a farmer), DRIVEN! A-type like daddy. Megann – Washington DC, Health care lobbyist, married, no children Richard, Jr. – Began as engineer, left to pursue DVM, joined practice in the last year, not married, no children
  8. Do you want to continue to run the business like it has always been run? This is a prudent question, especially in a second or third generation business where patriarchs or matriarchs have continued to pass down technical skill and ability as well as perhaps a dictatorial management style. Or, do you prefer to become a more professional company with a clear vision for the future to drive strategy and marketing efforts, particularly in light of the constantly changing economy and business environment that exists today?
  9. The family business offers three separate but connected systems of family, ownership and business with uncertain boundaries, different rules, and differing roles
  10. Right after graduation from Cornell, Vitulli worked in a private practice in upstate New York until 1993. After that she and her husband, a consultant with McKinsey, moved to Washington, D.C., where she went to work at Clocktower Animal Hospital in Hendron, Va. The owner, Bill Schwartz, DVM, "was a good person and a wonderful mentor“ The most difficult challenge was convincing a bank to finance her dream. "I was five years out of veterinary school," she says. "I didn't own a home and I had $50,000 in debt." She says the experience of talking to bankers taught her how important it is to have a good business plan—one you truly believe in—and to keep on knocking on doors.” "They don't learn how to be good people managers in veterinary school," she says. "It's all about communication, leadership, training and finding the right people."
  11. Christopher J. Allen, DVM, JD May 1, 2015 - http://veterinarynews.dvm360.com/3-reasons-start-your-exit-plan-today
  12. May 1, 2015 - http://veterinarynews.dvm360.com/3-reasons-start-your-exit-plan-today
  13. http://veterinarynews.dvm360.com/urgently-rethinking-way-we-teach-veterinary-medicine Peter Eyre, DVM&S, BSc, BVMS, PhD, Robert C. Brown, DVM,Charles J. Wayner, DVM, Richard M. DeBowes, DVM, MS, DACVS,James F. Wilson, DVM, JD
  14. Practice good communication.  Establish boundaries. Get it in writing Ideally, the owner will always be open to having conversations about his or her personal relationships in the practice if they’re affecting the workplace. “If you keep it professional, most people think it’s just fine that they have to work with the boss’s spouse,” McVey says. http://veterinarybusiness.dvm360.com/3-tips-surviving-family-owned-veterinary-practice