Family Business Q&A with John Brooks

Q What do you think are the key challenges to family businesses?
A Apart from successfully running their business, family business owners are challenged by transitions to the next generation of ownership as well as management succession (particularly if it involves family members). In addition, because of family dynamics, family members may find it more challenging to work effectively together in the business or as owners.

Q What advice do you have on family business succession?
A Plan ahead. Changes in management will happen; it’s just a question of when. The key is to be able to be objective about the needs of the business and the abilities of management. This can be difficult for a family member, particularly the company founder. Capable outsiders, ideally current board members, can be very useful in providing objective assessments of company needs and management talent.

Q What advice do you offer about ownership transitions?
A Once again, plan ahead. From a financial standpoint, make sure estate plans address issues relating to family business stock. Take advantage of transfer tools like a Grantor Retained Annuity Trust to minimize the tax burden on your company and/or your estate. Transfer of ownership will proceed more smoothly if the older generation is confident the next generation is prepared for their new responsibilities. Family members should understand their responsibilities as business owners and cultivate a sense of stewardship.

Q How does ownership of a family business benefit the family?
A Because of generally favorable tax treatment, a family business is a great way for families to create wealth over time, and over generations. In addition, families who work well together, as members of management or an ownership group, stay connected and spend more time together, thereby learning more about each other, and developing bonds based on common experiences, both positive and challenging. In fact, for many family business owners, the relationship they enjoy with family members is their most important reason for owning the business.

Q Why do founders and family CEOs have such a hard time stepping 
away from the business?
A They may love their work. They may not have a successor or they may lack confidence in their successor. They may be concerned about financial security. They may not be able to “let go” because they have nothing else to grab onto. They may not have achieved their dream. So it’s not surprising these company leaders may need help in “stepping away.”