Charting a Course for Family Business Success

Family businesses are a vital segment of the U.S. economy, generating $7.7 trillion in gross domestic product, according to a report by Family Enterprise USA. While Wal-Mart Inc. is the largest family-owned business, reaching $648 billion in revenues in 2024, the company is among 32.4 million family businesses in the U.S. One of those is Bestbath, a manufacturer of FRP bathing products based in Caldwell, Idaho.

Megan Multanen serves as co-CEO of Bestbath, a second-generation, family-owned business, alongside her brother, Jay. They have guided the company founded by their father into a $50 million-plus enterprise.

“One of the things that I appreciate about having a family-owned business is the focus I get to have on the future,” says Multanen, immediate past chair of ACMA. “We aren’t beholden to an anonymous group of demanding stockholders. We are tasked with making good decisions that ensure our children, our employees’ children and our customers’ children can rely on Bestbath in the future.”

Family Business Traits

Last year, ACMA launched the Family Business Network (FBN) to foster collaboration and growth among family-owned businesses in the composites manufacturing sector.

“Any business guru will tell you that having a network of people who can listen, understand and give you advice is critical to success. But many closely held, family-run businesses don’t have a network of people that truly understand the quirks, challenges and joys of owning and running a family business,” says Multanen, whose company sponsors FBN. “The Family Business Network is a place where you can hear good ideas, process tricky issues and meet professionals who can guide families – and non-family members who manage and lead the business – through their unique planning and financial issues.”

In May, FBN hosted the first in a series of webinars led by Dennis Jaffe, a consultant with BanyanGlobal Family Business Advisors. A panel of experts shared strategies for navigating generational transitions, ownership structures and governance challenges.

Before diving into those strategies, Jaffe discussed two ways in which family businesses differ from other companies. The first is that people who own family businesses are more than just business partners.

“They have a personal relationship, which means they also have a personal agenda that goes beyond just seeing how much money they can make,” he says. “There are all kinds of considerations about working together – about what’s important – and these come up frequently.”

Second, family-owned businesses typically want to pass the company on to the next generation.

“While a lot of businesses are interested in immediate returns – what they made this quarter – the family business is looking ahead a generation or two and trying to create a legacy for their children and grandchildren,” says Jaffe.

Potential Pitfalls

There are a few statistics on family business succession that are widely cited by organizations: Less than one-third of all family-owned businesses successfully transition to the second generation, only 12% make it to the third generation and just 3% remain in business beyond that. If the data holds true, some of the unique challenges that family businesses face contribute to rocky transitions.

Jaffe shared four of them:

Challenge # 1: Balancing family and business roles

“Family businesses are strange entities that contain both a family, where people are emotionally connected and care for each other, and a business, where people are accountable and have to achieve results,” says Jaffe. “It’s very hard to shift from the family reality to the business reality.”

Challenge # 2: Transitioning from one family to a group of families

“Over two or three generations, the business is run by a group of families – something like a tribe. The second generation live together, but starting with the third generation they don’t,” says Jaffe. “They must learn how to work together. The challenge is to build on the positive things they share and overcome the inevitable differences that come up.”

Challenge # 3: Moving from one wealth creator to shared governance

“Family businesses are typically started by one entrepreneur who builds the business and makes decisions on their own,” says Jaffe. “The challenge for every family business is that the second and third generation can’t be like the first. There is no one like the wealth creator. Subsequent generations have to create a governance structure and decide how the business will be organized, who is in charge, what are the shared goals and so on.”

Challenge # 4: Expanding from a family business to a family enterprise

“By the third generation, family businesses usually move beyond a single business to a portfolio of interests,” says Jaffe. “They may have other investments, real estate and a family foundation. The family has to figure out not only how they are going to preserve the business, but what they are going to do with their wealth and resources.”

Wealth Management

The webinar panelists offered several recommendations to help family businesses address challenges and thrive. One of the top priorities is estate planning and wealth management.

“Having an estate plan, implementing it and confirming that the assets have the proper beneficiary designations is really critical,” says John Loew, a tax director at Sikich LLP. “Far more important is the impact on the family, so you need to share that estate plan.”

Jen Rasmussen, also a tax director at Sikich, encourages business owners to discuss their estate plan with everyone in the family, even if they don’t share all the details.

“We want people to disclose so that everyone has realistic expectations, even if it’s just to say, ‘We created a family trust, here is where the business is and you will be taken care of,’” says Rasmussen.

Setting up a family trust is key to managing estate taxes, sheltering assets from creditors and passing on wealth to future generations.

“A lot of our clients with long-term, multigenerational trusts have a family mission statement pertinent to the trust document,” says Loew. “It’s a message from you to current and future beneficiaries of your trust that expresses your wishes for use of the trust assets. A trust document can’t be too nebulous, but a family mission statement can provide guidance to the trustee.”

Family Forums

As businesses grow from generation to generation, decisions on roles of employment, ownership, inheritance and wealth distribution get complicated. People strive to be fair, but that’s an ambiguous concept. Matthew Petersen, a partner in the law firm Holland & Knight LLP, makes the distinction between a fair process and a fair outcome.

“A fair outcome is probably not achievable. In a large system, no matter what happens, there are always going to be people who are not fully satisfied with how the dice roll came out for them. But if there’s a fair process, people are much more accepting,” he says. “At a minimum, it’s a process that includes open and proactive communication to the family at large.”

Petersen and the other webinar panelists are proponents of family forums.

“I’m a true believer in holding regular meetings to convene the family members who are touched by the business,” he says. “They create an opportunity to communicate information about what’s happening in the business and a forum for people to be heard.”

Rob Sligh, a senior consultant with The Family Business Consulting Group, reminds family members to get together and have fun, too. In addition, make sure the business doesn’t lose its identity with each new generation.

“Share the founding story. How challenges were met can be inspirational and establish a solid foundation for other things like developing a family vision, values and expectations for business performance,” says Sligh. “These provide a north star for company leadership to follow.”

Exit Strategies

All business owners eventually step away from the business, whether they pass it to the next generation or sell the company. Planning is key.

“A well-planned exit takes five to six years,” says Rob Vero with Novastone Capital Advisors, which has an operator-led search fund program for succession. “Once you decide to exit the business, there are a wide range of possibilities.”

Vero recommends that owners go through the process of preparing their business for sale even if they don’t intend to sell it.

“Get your finances in order, then look at the organizational chart. Is it scalable?” he says. “Then, are you managing taxes and succession efficiently? If you ask those questions and get your company ready for sale, it will be better run and more disciplined. And that preparation becomes invaluable for the next generation to step in.”

As new generations enter the family business, there isn’t a one-size-fits-all solution. Collaborating with consultants and advisors, and networking with organizations like ACMA’s Family Business Network, can help businesses work through challenges and implement appropriate strategies.

“There are lots of ways you have to pay attention as you cross generations, and the challenges of the second and third generation are hugely different that the challenges of the first generation,” says Jaffe. “The fruits of success are that you get to continue playing. It’s like a video game, where you move on to level two and level three.” Susan Keen Flynn is managing editor of Composites Manufacturing magazine. Email comments to sflynn@keenconcepts.net.

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