Maryland 3.0: Five Questions on Family-Owned Business Challenges

When the Spy heard that a new business on the Shore was going to provide consulting services for family-owned businesses on the Eastern Shore, we wanted to know more about it. With family-owned businesses dominating the Upper and Mid-Shore business economic sector, how those companies success or fail is a natural interest of ours.

So, we contacted Worton-Based Harvey Wigder, founder of Fulcrum Transitions, and had a few questions about the challenges of family-owned businesses.

Spy: Could you tell us about family-owned businesses in America. How many of them are operating and is that number rising?

Harvey: When we think of business we tend to think of larger corporations. The truth is that US and global economies are dominated by family-owned businesses. Us Census date affirm that there are approximately 26 million businesses in the US. Of those, nearly 90% are family-owned. In fact, 35% of Fortune 500 companies and 60% of all publicly-held companies are family-controlled (owning more than 51% of the stock.)

Family owned businesses are credited with generating not less than 64% of our Gross Domestic Product. Beyond their influence on products and services,family businesses are also the huge employers in the country. employ about 62% of the total workforce and that nearly 75% of all more recent net jobs are the result of family business hiring.

Although we can identify dysfunctions in family businesses, those that last several generations and/or become public companies outperform their non-family peers. The strength of family businesses is that the best have a commitment to quality and legacy that is often absent in public companies.

Spy: What is the most common problems family-owned businesses have?

Family owned business are about the face a challenge unlike anything experienced in our economic history. The challenge is not about product and service decisions. It is the demographic reality of an aging population. The baby boomer generation has begun reaching the age of retirement.

This is a big deal–with important economic and social implications. The successful transition–to a family member or to a third-party buyer–is critical to long-term success of national and global economics. Just as the transition of local business is important to Kent County and the Eastern Shore.

Business owners know how to operate companies but do not have experience with succession and planning and for preparing business for successful sale. A disheartening number of businesses fall by the wayside or fail to get good value upon transition because they do not do the planning needed for a successful transition.

Spy: Bringing up a succession plan might be hard to do with some family businesses. How does one go about doing that?

Not attending to the issues of transition means risking that the business is ill-prepared and that family members are unclear about expectations. Family business owners may describe wanting to pass the business on to the next generation but a minority have made any plans to do so. It may be that as many as 60% of business owners between the ages of 55-64 have not discussed their exit plans with their spouses, business partners or families.

Spy: Once a family decides to develop a plan, what are the key suggestion you might suggest?

Creating a plan involves considering difficult interrelated issues about financial and personal future, family dynamics and business legacy. Dealing with them requires getting in touch with values and giving the issues thought and introspection.

The first step is to understand that if a plan isn’t made, the future will happen and that the person who doesn’t plan is likely to be unhappy with results.

Spy: Finally, how do families get help?

There are trained resources available to help sort through personal and family dynamics, financial issues and to help prepare the business for succession or sale. The second step is to understand that you need help to navigate this new territory and ask for it. I am part of several networks of professionals who work in this field and would be happy to help Kent County business frame issues and identify need resources to help them executive a successful transition.