By MELISSA HUTSELL
Business Journal Writer
MODESTO — More than half of all businesses in the U.S. are family-owned and operated; they are the foundation of the American economy, but face a complex set of issues that can make or break any entity.
The Family Business Center Central Valley, a nonprofit organization located in Modesto, provides a platform for regional businesses to share and address the concerns that are exclusive to family firms.
Family firms are defined as small, medium or large companies where multiple relatives hold major ownership or managerial roles, according to the Family Firm Institute (FFI). Globally, these companies account for two-thirds of all businesses, and 70-90 percent of the world’s gross domestic product (GDP).
In addition to being economic powerhouses, these businesses are “more likely to give charitably to their respective communities and engage in extensive philanthropic activities,” found the FFI.
The value of familial entrepreneurship cannot be understated, but mixing family with business has its challenges.
“Family businesses all [face similar] issues,” said Mathew Francis, the organization’s executive director.
The membership-based organization consists of 35 member businesses from a diversity of industries and approximately 100 participants.
The center sponsors multiple information opportunities throughout the year, including social events, guest speakers and seminars. This September best-selling author, Dr. Robert Lorder, will facilitate a seminar focused on developing good culture in family businesses.
“We try to do nine sessions per year that deal with common family businesses issues [such as:] cross generational communication — understanding millennials, how to build an advisory … board, and different debt and capital options,” Francis said.
A common concern for family businesses, Francis explained, is succession from one generation to the next.
While most business owners prefer to pass their company onto relatives, few will; research shows only 30 percent of family businesses survive into the second generation, 12 percent into the third, and roughly three percent into the fourth generation or beyond.
To add to this complexity, “By 2017, it is estimated that 40.3 percent of family business owners expect to retire, creating a significant transition of ownership in the U.S.,” reported the Conway Center for Family Business. “Less than half of those expecting to retire in five years have selected a successor.”
Succession planning is primary goal for the business center.
When new generations take ownership, communication, emotional and financial issues arise, Francis explained.
Transitions affect family and nonfamily members — investors, managers, employees and wives – all of whom have more than just passing interests in firms.
Simply put, family politics influences business practices, morale and success. For this reason, Francis welcomes key players, family and non-family, to participate in the center’s services.
Maintaining growth and wealth through succession is complex. There are different strategies, and legal and tax implications that come with transferring each estate. The center, Francis said, helps fellow business people lay out pros and cons — like the best way to pass assets onto children — while pacing them, allowing them to digest information and ask questions.
“How do you negotiate with a bank? What does it mean to borrow money from family members?” Francis said. Connecting members with experience in various fields or situations proves valuable for all.
The emotional impact of financial decision-making is of particular importance to family businesses going through cross-generational change because, Francis explained, “Fairness means something different to everyone else.”
The center helps participants “Exercise their options, good or bad. [They can] talk to someone who knows,” he said. “Building bridges; that’s the secret sauce.”
Catalyzing communication and confronting change are essential; sometimes outside help is necessary, explained Ron Fisher, owner of Fisher Nut and board member of the business center.
“This environment is an excellent way to start, continue to learn and implement plans to make better workplaces,” Fisher said.
Participation, Fisher said, has allowed him to be more proactive. “We’ve made adjustments to [the business] structure to help eliminate potential problems down the road,” he said.
Networking is important in this process; members learn from the mistakes and success of others, Fisher said.
Bringing everyone to the table is advantageous, Fisher explained, especially when building communication between older and younger generations.
Interacting with millennials — and merging old with new values — creates challenges, Francis said, “because they see the world differently.”
Millennials (born between 1984-2004) make up more than 75 percent of the workforce, and are distinguished for changing paradigms of business, life and family models.
While these things factor into the success of family businesses, an underlying issue for half of second and third generation family firms in the U.S. is addiction, Francis said.
Providing confidential spaces to discuss intersections of personal and professional issues are vital. The organization does not address issues like addiction directly, but rather enables “peer conversations and relationships that provide a place for families to talk privately and learn from one another,” Francis noted.
The key is creating support systems; these confidential, personal connections are the essence of the center, said Francis.
For more information about upcoming events, or the Family Business Center Central Valley, visit CVFamilyBusiness.org.