Family Business in Transition

Family business is big business. There are about 24 million family businesses in the United States, accounting for about 89 percent of business tax returns. In all, about 82 million people, or 62 percent of the American workforce, are employed by family enterprises. According to the Small Business Administration, small companies (those with 500 or fewer employees) create approximately three-quarters of net new jobs and generate 64 percent of the annual gross domestic product in the United States.

When the media portrays business, it almost always emphasizes big business and focuses especially on scandal-plagued companies like Enron. Family businesses represent the silent, virtually invisible majority of the North American free enterprise system.

This article presents key statistics, along with commentary, real-life family business examples, and a call to action for those who manage and own family businesses to rouse themselves to undertake the difficult task of self-perpetuation.

The bulk of statistics come from insurance giant MassMutual and the Raymond Institute, which funded a study published in January 2003, along with the Canadian Federation of Independent Business (CFIB) which produced a study in June 2005. Although the data overlap in a few areas, each study presents an interesting, if not downright startling picture, of the state of family business planning in North America.

Business Scenario

John and Mary Jones, co-owners of JZ Jones Construction Co., were enjoying a pre-dinner drink on a Saturday night. After a terribly busy week, they were reflecting on the states of their company and their lives, now that they were approaching 60.

“I’m worn out!” exclaimed John. “Our growth in the last four years has been a great thing for the company and our finances, but I’m working harder than ever before. I really thought by the time I was 60 years old that, as a man who ran his own business, I’d be able to slow down a little bit. The way things are going right now, I can’t see a time when that’s going to happen. I’m not sure how much longer I want to work this hard.”

“Well dear, I’ve told you how important it is for you to take more time off,” said Mary. “We’ve been married 35 years, and I can’t remember the last time we took a vacation that didn’t have to do with a construction industry meeting. Before we get too old to do it, I’d like to travel and see a little more of the world. We’ve worked so hard all our lives to build up a little money, and I’m afraid that, because you’re still having to work we’ll never get a chance to enjoy it.”

“I worry about Steve, Jody and Robert, too,” she continued. “You’ve created opportunities for Steve and Jody in the company, but poor Robert is barely making ends meet in his rock band. He’s got child support to pay for little Amy, too. As a mother, I just don’t know what to do about Robert.

“In fact, Steve told me the other day that the way our current estate plan is written, if something happens to us, the business would go to all three of the children equally, and he thinks that’s a rotten deal for him. He just doesn’t see how he’d be able to get along in business with his brother!

“The other thing that I don’t really understand is all these trusts. The long and short of it is that the business would go to me if something happens to you, and that’s about the last thing that I want. I’d rather find a different way to have financial security and keep me out of the middle of the children and business affairs.”

Revolutionary Change

John and Mary aren’t alone in their cocktail-hour discussion of the future of their family company, and the two surveys mentioned earlier have documented that many family business owners share their frustrations and concerns.

There is a sea change in the family business marketplace. About 40 percent of family businesses expect the leadership of their companies to change hands within the next five years, according to the surveys. Well over half