****************** Chapter 2 Family-Owned Businesses Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

****************** Family-Owned Business Organizing/Operating Family- Owned Business Organizing/Operating Family- Owned Business Family Relationships & Business Family Relationships & Business Preparing For The Next Generation & Management Succession Preparing For The Next Generation & Management Succession Tax/Estate Planning Tax/Estate Planning Chapter

****************** McGraw-Hill/Irwin Family & Business  Written Mission Statement  Include Children In Decisions  Family Discussions

****************** Family Mission Statement  Start From Trust/Openness  Unanimous Agreement On Values & Vision  Copies To All  Avoid:  Rushing Family  Favoring An Agenda  Forgetting Purpose Photodisc

****************** Trends In Family Business  Kids Start Business & Get Capital From Parents  Parent Given Executive Position  Spouses Working Together- Service Businesses With Technology  Needs Clear Chain Of Command Royalty-Free/CORBIS

****************** Tips For Spousal Ownership Monica Lau/Getty Images

****************** Daughters Considering Succession To Family Business ♀Express Interest ♀Outside Experience ♀Learn From Seniors ♀Be Sensitive ♀Get Involved ♀Meet Women ♀Define Yourself ♀Develop A Vision Royalty-Free/CORBIS

****************** Successful Family Interaction  Founder = Head  Some Family In High Positions  Instill “Sense Of Ownership”  Deal With Incompetents  Compensate  Recognize Limitations

****************** Steps In Divorce 1.Business Appraisal 2.Negotiate Buyout 3.Decide What To Do With Stock 4.Seek Tax Professionals

****************** Family Culture & Business  Large Families oStay-At-Home Mom oDevelop Hobbies As Business  Working Moms Establish Business oEconomy More Difficult oNeed Additional Income oLarge Business No Longer Family-Friendly Keith Brofsky/Getty Images

****************** Family Resources  Borrow Capital  Sell Stock  Selling Personal Assets  Other PhotoLink/Getty Images

****************** Next Generation Preparation  Start Part/Full- Time Job  Start Entry or Higher-Level In Business  Outside Experience  Rotate Jobs  Earn Promotions  Teaching & Training  Leave Work At Work  If Prepared, Give Responsibility

****************** Succession Planning  Plan Early & Carefully  Groom Successor Doug Menuez/Getty Images

****************** Succession Problems  Treat All Children Fairly  Nonfamily Employees?  Family Concerns: oCommunication oConflict oEstate Taxes  More Than 1 Child Succession

****************** Succession Obstacles: Founder  Financial Security  Sudden Free Time  Self-Esteem  Founder Fair To Successor(s)  Successor Ready?  Jealousy/ Rivalry To Successor  Effect On Spouse  Founder’s Fiduciary Responsibility To Nonfamily Employees  Friends Continue To Work  Fear Of Death  Reluctance To Release Power  Coaching Skills? Source: Family Business Experts,

******************  Spouse’s Role In Business  Reluctance To Discuss Future Beyond Parents’ Life  Fairness vs. Favoritism  Fear Of Parents’ Death Succession Obstacles: Family Source: Family Business Experts, Jack Hollingsworth/Getty Images

******************  Personal Relationship With Founder  Differentiating Amongst Key Managers  Reluctance To Establish Formal Controls  Fear Of Change Succession Obstacles: Employees Source: Family Business Experts, Royalty-Free/CORBIS

******************  Customers & Suppliers  Dependence On Founder  Trust/Confidence In Potential Successor Succession Obstacles: Outsiders Source: Family Business Experts, Royalty-Free/CORBIS

****************** Causes Of Succession Family Leader:  Sudden Departure oDies oBecomes Incapacitated  Planned Departure oLeaves Company oRetires Royalty-Free/CORBIS/

****************** Family Leader: Replacement Options

****************** Selling To Family Members- Advantages  Stays In Family  Source Of Family Employment  Stature Maintained  Owner = Relax  Pleasure Of Success  Strengthen Family

******************  Assured Income  Lack Of Worry  Consult?  Release Tension  Relief Of Responsibility Selling To Outsiders- Advantages

******************  Loss Of Family ID  Loss = Sadness Selling To Outsiders- Disadvantages Greg Kuchik/Getty Images

****************** Ease The Transition For Owner  Broaden Focus  Devote Time To: oHobbies oOther Groups  Gradually Turn Over Control Doug Menuez/Getty Images

****************** Inc. 500 CEOs’ Net Worth Source: Inc. Magazine, “Compensation”, November 2004.

****************** INC. 500 CEOs’ Take-Home Pay Source: Inc. Magazine, “Compensation”, November 2004.

****************** Financial Planning  Tax - Annual Conferences With Tax Accountant  Estate – Transfer Of Assets At Death oPerpetuation oLiquidity  Business Standpoint oReduce Cash Strain oMaintain Beneficiaries’ Interest oSmooth Transition Keith Brofsky/Getty Images

****************** Estate Planning Techniques  Gifts  Stock Sales  Living Trusts  Family Limited Partnerships oMinimize Cost oRetain Control  Buy/Sell Agreement PhotoLink/Getty Images

****************** Business Valuation  Comparables  Earnings Capitalization  Book Value