Prevalence

The greatest part of America’s wealth lies with family-owned businesses. Family firms comprise 80% to 90% of all business enterprises in North America. (J.H. Astrachan and M.C. Shanker, “Family Businesses’ Contribution to the U.S. Economy: A Closer Look,” Family Business Review, September 2003).

International Family Owned Businesses contribute 64% of the GDP or $5,907 billion ($5+ trillion) and employ 62% of the U.S. workforce. (J.H. Astrachan and M.C. Shanker, “Family Businesses’ Contribution to the U.S. Economy: A Closer Look,” Family Business Review, September 2003)

The oldest FOB operating in the United States is the Zildjian Cymbal Co. of Norwood, MA. Founded in 1623 in Constantinople and moved with the family to the United States in 1929. (Family Business Magazine, Spring 2001)

Family Businesses Versus Non-Family Businesses

In a study of S&P 500 firms (Anderson and Reeb, 2003):

  • 33.6% of S&P 500 firms are family businesses in which the founding family has, on average, 18% of firm equity.
  • Family firm capital structure is the same.
  • Family firm performance is greater and EVA is 5.5% greater ($118.6 million on average) when founding families maintain an ownership stake.
  • Young family firms and old family firms (50-year-old threshold) outperform non-family firms.
  • ROA is greater in family businesses, with a 6.65% greater return than non-family firms.
  • Families own for an average of 78 years.
  • Family firm CEOs earn on average nearly 10% less than their non-family counterparts.

Succession

85% of family-owned firms that have identified a successor say it will be a family member. (Raymond Institute/MassMutual, American Family Business Survey, 2003)

More than 30% of all family-owned businesses survive into the second generation. Twelve percent will still be viable into the third generation, with 3% of all family businesses operating at the fourth-generation level and beyond. (Joseph Astrachan, Ph.D., editor, Family Business Review)

Within 10 years, 40% of business owners expect to retire, creating a significant transition. Of these, fewer than half (45.5%) of those expecting to retire in five years and fewer than a third (29%) of those expecting to retire between six and 11 years have selected a successor. (MassMutual, American Family Business Survey, 2007)

Almost a third (30.5%) have no plans to retire, ever; and nearly another third (29.2%) report that retirement is more than 11 years away. (MassMutal, American Family Business Survey, 2007)

Nearly a third (31.4%) have no estate plan beyond a will. (MassMutual, American Family Business Survey, 2007)

37.4% of Family Businesses have buy-sell agreements or other arrangements defining who can own stock and how it is transferred (MassMutual, American Family Business Survey, 2007)

Women

Family Businesses are providing a growing opportunity for women with 24% of Family businesses with a female CEO or President. And 31.3% of firms indicate that the next successor is a female. Additionally, nearly 60% of all firms have women in top management team positions (MassMutual American Family Business Survey, 2007).

Operations

64% have regular formal valuations of the worth of the business. (MassMutal, American Family Business Survey, 2007).

One third have an active board of directors and over half (50.9%) rate their contribution as outstanding, a major increase from 2002 which was only 22%. (MassMutal, American Family Business Survey, 2007).

Over half (55.4%) have formal family meetings at least once a year. (MassMutal, American Family Business Survey, 2007).

Almost half of all firms (45.2%) have a full-time employee responsible for human resource management matters such as recruiting, performance appraisals, and benefits administration. (MassMutal, American Family Business Survey, 2007).

Advisors

Business Owners rate their spouse as the most trusted advisor, followed by an accountant and a business peer. (MassMutual, American Family Business Survey, 2007)

Challenges

Of primary importance among family firm wealth holders is transferring not only their financial wealth but also their values surrounding their wealth to subsequent generations. Primary values taught include encouraging children to earn their own money, philanthropy, charitable giving, and volunteering. (Wealth with Responsibility Study/2000, Bankers Trust Private Banking, Deutsche Bank Group)

From the 2007 American Family Business Survey the top ten challenges for family owned businesses are:

  1. Succession
  2. Labor costs
  3. Health care costs
  4. Finding qualified employees
  5. Foreign competition
  6. Labor union demands
  7. Domestic competition
  8. Oil prices
  9. Availability of credit from lenders
  10. Estate taxes

Family Enterprise USA – Family Enterprises Data

  • The tenure of leadership in a Family Enterprise is four to five times longer than their counterparts.
  • There are 5.5 million family-owned businesses in the United States.
  • Family Enterprises generate 57% of the nation’s GDP.
  • Family Enterprises employ 63% of the U.S. workforce.
  • 75% of all new jobs are generated by family businesses.
  • 60% of all publicly held U.S. companies are family-controlled.
  • 95% of family businesses engage in some form of philanthropy.

2012 Family Enterprise USA Survey of Family Firms

According to the 300 executives who responded to the survey, the following policy issues are the most pressing for their businesses:

  • “Increasing regulatory responsibilities are costing us all too much money and reducing productivity.”
  • “Runaway regulation whether Healthcare, Labor, EPA, or taxes. We need government to acknowledge that excess, duplicate and/or conflicting regulations prohibit businesses from rebuilding the economy.”
  • “We sold the largest corporate entity in our family’s holdings in 2010 due to uncertainty in capital gains. Now it is the soft economy in general.”
  • “Uncertainty is driving caution and slows major business investment. Major customers have postponed some major capital expenditures.”
  • “Corporate tax rates and rate uncertainty for future investments”

You can be an angel.

Are you already part of a successful family business?
Consider joining at the Sponsoring “Angel” Membership ($5,000) Level.
Sponsoring members benefit the entire FBA community by helping us keep membership fees affordable for smaller family firms, while enabling us to continue to offer quality programming.

See Family Business Membership Agreement, or contact Ellie Frey Zagel for more details.

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