By J. Michael Bowma, & Margo Reign
Family-owned businesses are the quiet powerhouse behind the economy locally and globally. Most would agree that family businesses bring tremendous value to society and our economy. But just how much value do they bring? Data show that:
• A majority of the world’s wealth is created by family-owned businesses. Estimates suggest that businesses that are majority owned by a single family’s members contribute to over 70% of the world’s GDP.
• New business is fueled by family involvement with 85% of startups worldwide established with family money.
• Family firms outperform non-family firms – universally. The outperformance of family firms globally is demonstrated by a 6.65% difference in return on assets in the U.S., and at least an 8% difference in Europe.
• In Delaware alone, there are over 73,000 businesses, the vast majority of which are privately- or family-owned.
One of the most challenging issues facing family-owned businesses is succession and continuity planning. Now more than ever, businesses should be thinking about the long-term viability of their operations.
Owners can begin with an assessment of their current status and answer succession-planning questions like:
• Who are the family members in the business?
• How long have they been in the business?
• What is their job function?
• What are their skills and experience?
• Who are the non-family management employees in the business?
• How long have they been in the business?
• What is their job function?
• What are their skills and experience?
• What are the skills and knowledge needed to manage the businesses?
• Who in the above list appears to have the interest and desire to manage the business?
Once asked and answered, identify several potential successors, establish a training schedule to teach the skills needed and plan for the transfer of authority. This is best done in stages over time to give the individual the opportunity to make mistakes, while you are still able to help.
In light of a global pandemic, family-owned businesses should also assess the “new normal” by answering recovery and resiliency questions like:
• Do you know where to access disaster relief resources?
• Do you have a business continuity plan?
• How long will your cash reserves last in the current business environment?
• Will you need to change your business model, either in the short-term or permanently?
• Are there new products, services, or distribution channels you should consider to take advantage of new opportunities or changes in the marketplace?
• What are the sources of risk to your business? Which of those can and should be proactively managed and how?
These questions can be difficult to answer and should not be answered in a vacuum, but with input from other family members, your attorney, accountant, insurance agent, banker and possibly a business advisor from the Delaware Small Business Development Center (SBDC).
Also be sure to attend The Family Owned Business Series, sponsored by The Delaware SBDC and Delaware Business Times, that has been providing timely and important information to family-owned businesses for the last six years. Topics have included transition planning, communication within the family business, as well as the stories of many local successful family-owned businesses. One of the most interesting tidbits we learned was from Phil Clemens, former chairman and CEO of Hatfield Quality Meats. He posed this question to all family-owned businesses: “Are we a family-owned business or a business family?”
The SBDC has been serving the entire state of Delaware for over 35 years, helping businesses grow, succeed, overcome tragedies, plan for transitions or, when the time comes, to sell the business. When the pandemic hit in March, the SBDC worked with small businesses, medium-sized business, young business and old businesses, to help them navigate the complex maze of relief resources, as well as provide reassurance that working together, we will all make it through these challenging times. We have also teamed up businesses with University of Delaware students to get a fresh and creative look at ways to navigate through COIVD-19.
If you think your business could benefit from working with a Delaware SBDC advisor simply register for advising at www.DelawareSBDC.org. J. Michael Bowman serves as state director for the Small Business Development Center, while Denita Henderson serves as associate state director and Margo Reign serves as a business advisor.
