Chapter 02 – Family-Owned Businesses
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CHAPTER
Family–Owned Businesses
CHAPTER CONTENTS
Learning Objectives 2.2
Chapter Overview 2.2
Brief Chapter Outline 2.2
2
Chapter 02 – Family-Owned Businesses
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LEARNING OBJECTIVES
After studying the material in this chapter, the student will be able to:
1. Discuss some problems involved in organizing and operating small family-owned busi-
nesses.
2. Explain how family relationships can affect the business.
CHAPTER OVERVIEW
This second chapter develops three ideas: the family in business; the problems of management
succession, preparation for sudden and planned departure of key personnel, and hints on selling a busi-
BRIEF CHAPTER OUTLINE
I. ROLE OF THE FAMILY-OWNED BUSINESS
A. The Family and the Business
B. Family Interactions
II. PREPARING FOR MANAGEMENT SUCCESSION
A. Why Succession Is a Problem
B. An Overlooked Problem
III. PLAN AHEAD!
A. Sudden Departure
Chapter 02 – Family-Owned Businesses
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IV. TAX AND ESTATE PLANNING
A. Tax Planning
V. ESTATE PLANNING TO MINIMIZE TAXES
A. Estate Planning Issues
Chapter 02 – Family-Owned Businesses
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CHAPTER OUTLINE AND TEACHING NOTES
CHAPTER OPENING PROFILE:
Farris-Feuerborn Memorial Chapel
The opening profile features the Farris-Feuerborn Memorial Chapel, a good example of a
successful family business that has survived several generations. 35-40% of the Chapel’s business
I. ROLE OF FAMILY-OWNED BUSINESS
Learning Objective 1.
Discuss some problems involved in organizing and operat-
ing small family-owned businesses.
A. The Conway Center for Family Business
Estimates that between 80 to 90% of all
U.S. companies are family owned.
1. The majority of small companies
have fewer than 30 employees.
2. The Institute estimates that only
B. Family businesses can be their own ob–
stacle to success.
1. When close relatives work together,
emotions can interfere with business
C. The Family and the Business
Chapter 02 – Family-Owned Businesses
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CHAPTER OUTLINE AND TEACHING NOTES
1. Family businesses need a family mis-
sion statement to cope with the busi-
ness’ demands.
a. The younger generations should
Real World Example 2.1
The Levy brothers who run the Levy Organization in Chi-
cago, believe their mother is the heart of their organization.
They named a Deli after their mother and use her recipes.
2. Recent trends that involve careful
planning and co-operation:
a. Spouses going into business to-
gether.
REAL WORLD EXAMPLE 2.2
Jim and Eva Sisler are examples of this trend. They com-
bined their desire to travel with a truck-driving business ven-
ture.
3. In any business, especially where
families are involved; one person
Chapter 02 – Family-Owned Businesses
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CHAPTER OUTLINE AND TEACHING NOTES
D. Family Interactions
Learning Objective 2.
Explain how family relationships can affect the business.
1. Usually the founder is the head of the
business.
REAL WORLD EXAMPLE 2.3
Asplundh Tree Company is a family-held business with
no desire to go public. Members of the fourth generation help
carry on the family business.
b. Family members’ sense of own-
2. How to deal with incompetent family
members
a. The best interests of family mem-
Chapter 02 – Family-Owned Businesses
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CHAPTER OUTLINE AND TEACHING NOTES
3. How to compensate family members
(Making sure every company position
and salary is in writing, agreed upon
at funding of company, will save
some problems later.)
a. Each family member has differ-
ent perceptions of their contribu-
E. Family Limitations
1. Entrepreneurs tend to be specialists
in a given activity and may not be
good general managers.
2. It is hard to say “no” to a family mem-
ber who wants to enter the business.
Chapter 02 – Family-Owned Businesses
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CHAPTER OUTLINE AND TEACHING NOTES
. 5. When no family members are availa-
ble to run the business, some families
form corporations and hire profes-
sional managers.
a. This has the advantages of using
6. Divorce creates a special problem for
many husband-and-wife-run busi-
nesses and can be handled by:
a. Having the business appraised.
F. Culture and the Family Business
1. Some cultures such as those of
Utah’s Mormons (70% of the state’s
REAL WORLD EXAMPLE 2.5
Chapter 02 – Family-Owned Businesses
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CHAPTER OUTLINE AND TEACHING NOTES
When her husband’s construction business collapsed,
Laura Savage discovered her home business was the key to
her family’s survival.
2. Many stay-at-home moms turn hob-
REAL WORLD EXAMPLE 2.6
Two entrepreneurs launch home-based businesses. Diane
St. James went into business for herself so she could stay
home with her two daughters. Krista Sweeney left a corporate
position and launched her own website.
G. Family Resources
1. Available capital available within the
H. Preparing for the Next Generation
1. Apathy on the part of offspring is a
growing problem.
a. Children may not be interested in
taking over the family business.
2. Start at part-time or full-time jobs?
a. In preparation for succession, off-
spring can begin with simple
jobs, or on a part-time basis.
Chapter 02 – Family-Owned Businesses
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CHAPTER OUTLINE AND TEACHING NOTES
3. Start at entry-level or higher-level po-
sitions?
a. It is not a good idea to allow a
son or daughter to work in senior
management until he or she has
REAL WORLD EXAMPLE 2.7
Lee Patterson Co. is a good example of a family business
that has evolved from a corner store into a major supplier of
paint supplies.
II. PREPARING FOR MANAGEMENT SUC-
CESSION
Learning Objective 4.
Discuss the importance and method of preparing for man-
agement succession.
A. Any business must be ready for changes
in its top management.
1. The key job requires considerable
training and experience.
Chapter 02 – Family-Owned Businesses
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CHAPTER OUTLINE AND TEACHING NOTES
B. Why Succession Is a Problem
1. The successor needs the ability to
operate the business, plus the educa-
tion, talent, and desire to do so.
REAL WORLD EXAMPLE 2.8
Bill Feurerborn chose politics and retail as a career path,
instead of the family’s funeral business.
5. Ongoing training should begin early
REAL WORLD EXAMPLE 2.9
Susan McManigal joined her family’s business, French
Hand Laundry, as an accountant and learned the business from
the ground up.
6. When the choice of replacements is
REAL WORLD EXAMPLE 2.10
There is no fourth generation successor for the Bon Ton
Hatters. The only child, a daughter, is training to be a pediatric
intensive care nurse.
Chapter 02 – Family-Owned Businesses
CHAPTER OUTLINE AND TEACHING NOTES
C. An Overlooked Problem
1. Developing managerial personnel
and planning for management suc-
cession are often neglected, fre-
III. PLAN AHEAD!
Learning Objective 3.
Describe the activities needed to prepare the next genera-
tion to enter the firm.
A. Management succession occurs when the
leader dies, becomes incapacitated,
leaves the company, or retires.
1. Entrepreneurs should start planning
B. Sudden Departure
1. A successful business must continue
to operate even when the