Family Business Prelims PDF

FAMILY BUSINESS - Ownership can be considered a series of ENT51122 rights and exercising these five rights PRELIMS gives owners the power to shape, not only...

FAMILY BUSINESS - Ownership can be considered a series of ENT51122 rights and exercising these five rights PRELIMS gives owners the power to shape, not only the family but also the business 9/11 - synch Unit 1 Lecture 1 1. Right to Design Understanding family business - Owners have the right to decide what type of family business they will create Owners have huge impact - Business owners can be owned by: - Owners have ultimate authority over Sole owner - a family member decision in the business holds a solo ownership in all - Personal character plays a role in the faith generation of the family business Partnership - actively participating in the business can be the owner Examining relationships Distributed - where any Family relationships descendant can be an owner, or - at their best when inclusive forgiving anyone eligible protective and supportively challenging Concentrated - where a Business relationship descendant can be an owner but - Hierarchal has a subset that also has all - Reporting structure controls towards the business - Meritocratic Owner relationships 2. Right to Decide - voting control - Owners have the right to make every - Influence decision involved in running the business. - Exclusive club - Desire - they can choose for themselves or for other System dymamics - They can choose to make each decision - A family business is a system that people as situations arise or to establish policies are interconnected to that set precedents in advance 1. Sameness - In doing so the owners exercise the right - fambus will behave predictable ways that to decide are similar to some businesses - The 4 Room Model 2. Mutuality - the interconnected nature of a family business means that people can achieve outcomes only by working together 3. Competing interests - create competition inside a family business 7 roles Family owners = employees (KULANG ‘TOOOOOOOOO) Owner room - power and influence Unit 1 Lecture 2 Board room - wisdom and judgement 5 RIGHTS of Family Owners Management room - competence and execution Power to destroy/sustain a family business Family room - love, unity, and - Comes from the owners unique ability to development make choices that influence every aspect of their of their companies  - Each room has clear rules who is allowed BUT, misundertanding or misdirecting these rights inside, how desicions are amde there can also destroy what a family spent generations - A useful way to map out decisions in a trying to build. It will naturally implode family business - Used to organize the people You need to understand OWNERSHIP for a - Right relationship and environment is family business. needed to operate - DECISION and INFORMATION flow Create an owner strategy to define success among the rooms is the KEY (creating) - Each room will make decision or create - You have the freedom when it comes to policies that the other room will know family business about in order for them to perform well or to do their work well Define value in terms of growth, liquidity, and control 3. Right to Value - The right to define value: growth, - Owners have the right to define success liquidity, and control as they see fit - Do you want to place any - Write the value owners have the right to restrictions on the growth of the define success themselves as they see fit business? - a question to a family - They can maximixe shareholder return business owners, as it is measured - Can also determine how much profit not the same with a public business; some avoided group, 4. Right to Inform some in favor of creating a strong - Right to be informed culture; first question to ask to - Owners have the right to access know what your family value the information about their business most - This access can give the owners the right - How much liquidity do you want to to determine what info to share to others take out of the company? - up to - Owners give up as much of this right if a the owners; 100% payout of the business is public, in comparison private annual profits to the owners; for business where info can be chosen some, no dividens for decades, with all profits being reinvested in the company 5. Right to Transfer - Are you willing to give up control - Owners have the right to choose how and over decisions? - bootstrapping or when to exit ownership equity funding; resisting equity - Owners can choose how and when to exit capital from outside if often ownership and they can decide who will rejected by a family business; own the business after them and set some dealing with outsiders is totally rules different with cousins and siblings or any family member. Key to longevity of a family business depends on how its owners exercise these five rights Articulate a compelling purpose TRANSFER - plan for the transition to the - Defining purpose in a family next generation business DESIGN - choose the type of family - According to a study, common ownership you want answers if to continue the legacy DECIDE - structure governanace to make and its not that compelling and great decisions together superficial and these are called INFORM - use effective communication to Surface Purpose (is unlikely to last build trusted relationships in the long run) VALUE - create an Owner Strategy to - The purpose should build family define success unity  - It should be aspirational, inclusive, your control or some autonomy; to and attractive be exchange for ownership - It should encourage family - Often done on a limited basis members to spend time together Growth and liquidity - It should define how you will - Focused on expansion and paying exercise your right out money to the owners - Do you own the business togther - Use other people’s money either to grow it? - you can see your debt or equity capital to keep the opportunities; the larger the business afloat to keep the business the more you can business running and therefore the influence the world owners will have to give up some - Do you won the business together control as a result to take money out of it? - is money Liquidity and control all about your family business, or - Not concerned with how the securing the future business grow - Do you won the business together - Moderate to high dividends to have autonomy over your lives? - Low to no debt - Most family finds taht each - (relatively) Low capital generation has its own reason to expenditures stay together - It will also help to clarify how your Define guardrails to keep your company family business will define success from veering off course (Creating owner guardrails) Translate that purpose into specific goals - These are the final component of your - Setting owner goals owner strategy - A clear purpose will also help you - Provide boundaries around standard make concrete choices about how business strategy decisions and where to create value - Financial and non-financial guardrails - Balance things out; find your Financial guardrails balance - Set specific standards of - The Owner Strategy Triangle performance to align with owner goals - Identifies the right metrics - A safety net - A place where we don’t go beyond Non-financial guardrails - Define outcomes for which owners are willing to sacrifice financial performance - Falls into 4 categories - Some wanted one only; but some want all Leadership - a question of 3 does the company need to Growth and control be led by its owners, even if - Low to no dividends they’re not objectively the - Low to no external equity or debt most qualified - The business will grow through Business sectors and retained earnings geographic locations - - Answering either to outside wish to avoid investing, investors or to borrowers it would business field or location require you to surrender some of Harmony - family harmony; any decision to be made or  avoided to preserve family Competent - do they bring harmony relevant and effective knowledge, Business practices - up to skills, or judgement; can make you what extent are you willing smile or happy to sacrifice financial Open - transparent; honest and performance; sharing information Communicate your purpose, goals, and Concerned - do they really care guardrails in an owner strategy about you more that themselves management (developing your owner Reliable startegy statement) - All these 4 require great communication - An owner strategy statement is a document that articulate your purpose, Transparency vs. Privacy your goals, and your guradrails - Family businesses believe that sharing - Creed of the family buisness information can create trouble - There are consequences of not sharing Purpose informations - Why do you own your business together? Goals Current Owners - What trade-offs will you make between - Owners have different levels of growth, liquidity, and control to achieve involvement individuals fall into 3 distinct your purpose? Operators - work in the company Guardrails Governors - board room and decision - What metrics and boundary conditions do making you need to provide to the board and Investors - they may or may not be management to help them understand and involved implement your goals? New-generation owners The owners startegy statement should be - Often called as brats Specific - A child can sense a title of entitlement Form the basis of dialogue Act as a dashboard that identitifes the Employees metrics - Lacking insight - they starting filling in the Help the owners know if business is void with rumors meeting the objectives - Who feel connected to the mission and - A living document owners refer to success of a business, are far more regularly (owners startegy statement) engaged, loyal and productive - 3 elements: purpose, goals, and - They contribute more to its success guardrails Public Effective communication to build trusted - Be very careful relationships (up to the owners) - Overshare information to others can - Right to inform jeopardize the business, or put the - Privacy and transparency business or family members in danger - Communication is the key - Not everything can be shared Building Trust Drafting your communication plan - Most valuable asset - Vital tool - Can help you overcome the challenges - Effective communication comes with a that comes with working plan - Communication is criticl to building that 1. Map out the key audiences you need to trust connect with - Trust has 4 measureable components  2. Agree on what you will and won’t - (6) consider outside board and leadership communicate with each audience - if no family member is qualified explain why you keep private informations 3. Orchestrating the handoff 3. Invest some time in getting better at - (1) prepare the organization talking - speaking eye; match your - (2) structured communication message to the type of people - (3) transition of key relationships 4. Facilitate effective communication - - (4) start the transition early information flow is organic during the start - (5) celebrate the transition of the business, but as it grows you need Capabilities to decide how do you communicate of - shape the next generation of leadership pace and level with an early effort to engage them and prepare them for their future roles in all UNIT II four rooms Transition to the Next Generation (passing down the family business) Summing up the right to transfer gives you the freedom The right to transfer to determine the future of the family Sell (to an outsider) business - keep sales discussions restricted to the owner and board rooms - reasons why: conflict, not similar interest or field, palugi na Divide (among next-generation members) - Dividing ownership ensures that there is no shared family business to pass down Transition - Transfer the entire business - Owners control not only the decision but also the process Essential elements of successful continuity planning (continuity plan) Assets - transferring assets - (1) reaffirm or revisit your ownership type - (2) Understand tax-planning tools - the role that taxes play in a transfer cannot be underestimated Roles 1. Preparing the current leader - - Handing over power is also an act of deep loss at a time when the owner’s life is surrounded by loss - Glide path - plot; your role in the business, what are your roles after retirement 2. Selecting successors - (1) make them earn it - (2) establish clear and transparent process - (3) alignment with owner strategy - (4) get outside help - to avoid biases - (5) avoid temptation to clone