William Penn Life, 2016 (51. évfolyam, 1-12. szám)

2016-10-01 / 10. szám

Moneywise with Bob Bisceglia, Notional Sales Director

Keeping it all in the family

Insurance needs for the family-owned business

IN THE AUGUST ISSUE of William Petin Life, I discussed the special needs of two of the fastest growing markets in America today: Generation X and Millennials (aka, Generation Y). Because many Gen X and Y families will stand to inherit or form family-owned businesses, I'd like to discuss the needs of business owners, especially those in family-run businesses.

First, let's review some background data. Family-run businesses are economic powerhouses and form the backbone of the American economy. Family businesses account for 80 to 90 percent of all businesses in the U.S., and 35 percent of Fortune 500 companies are family-controlled businesses. The greatest part of America's wealth lies within family-owned businesses. And, since family-run businesses employ nearly 62 percent of the entire U.S. workforce, chances are high that today's Millennial or GenX'er will at some point be employed by — or become part of — a family-owned business enterprise.

According to a recent study conducted by the Harvard Business Review, some 70 percent of family-owned businesses fail or are sold before the second generation gets the chance to take over. Only 10 percent remain active into the third generation, and only 3 percent survive for the third and subsequent generations.

The family businesses that survive past the first generation have longevity. Studies have shown that family control helps a business operate more efficiently since family members are able to positively affect the company values, have fewer human resource problems and help drive new entrepreneurial spirit. What drives many family-run businesses is the sense of ownership and connection between the owners, other family members and employees. For this reason, family-run businesses have less turnover than their publicly-held counterparts, and today's business owners are concerned about transferring not only the business wealth but also their values surrounding their wealth to future generations.

Successful family businesses do business the right way. They focus on the next generation — not the next quarter or year. They tend to generate good company morals and values by putting customers and employees first and emphasize a higher level of social responsibility than larger publicly-held firms.

Women are becoming increasingly involved in familyrun businesses. Currently 24 percent of family businesses are led or owned by a female, and 31 percent of the firms surveyed by the Harvard Business Review indicated that the next successor (the person identified to take over the business) is a female. The study also indicates that over the last five years, woman-owned family businesses have increased by 37 percent.

Now, let's review some issues that today's familyowned business might incur:

According to the Harvard study, the mean age of today's business owner is 60.5 years. As Americans live longer, business estate and succession planning will become increasingly important if the family-owned business is expected to survive to the next generation, especially if the parent started the business and intends to pass it on to one or more children.

By 2017, it is estimated that over 40 percent of all family business owners in the U.S. expect to retire, creating a huge transition of ownership. Less than half of those indicating their plan to retire have selected a successor. Nearly one-third of U.S. business owners surveyed say they have no estate plan beyond a simple will, and only 53 percent said they have a "pretty good" understanding of how to handle the transition. While 70 percent of the respondents indicated their desire to pass the business to the next generation, only 30 percent will be successful transitioning to the next generation.

Business owners should take time — at least once each year — to review the value of their business and think

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4 0 October 2016 0 WILLIAM PENN LIFE