Business, Ownership

and Family

Cornell University College of Veterinary Medicine Ithaca, NY April 27, 2015

Quiz

What is a family business?

Perceptions…

Succession Checklist

Definition of a

family business?

• Ownership control (>15%) by family or partnership of families

• Strategic influence by family members on the management of the firm

• Concern for family relationships

• The dream (or possibility) of continuity across generations

Poza, 2007

The ultimate aim of ANY

business is…

VALUE CREATION!

What makes

family business unique?

• Presence of family

• Owners dream to keep in family

• Overlap of

– Family

– Ownership

– Employment

• Unique sources of competitive advantage

The Family Business 3-circle model

Family Business

Ownership

Tagiuri & Davis (1982)

Unique challenges facing

family business

• Unqualified family members in key positions within the company.

• Communication of business issues is difficult enough, however layered with challenging family matters, often communication completely breaks down.

• Marriage and divorce plays a key role in family business success and failure.

• Involvement of family members not employed by the company.

• Family members in ownership versus management positions.

Why family business?

• 77% of all new business ventures established in the United States are founded with significant involvement of the family in the business.

• The public views small business as most trust-worthy when it comes to spending efficiency. Federal government is viewed as least efficient.

• 73% people say they trust a family business, however, that number tends to decline after an ownership transition.

Family Business Facts

• 36.7 % have written strategic plan• Of those staying in family, 85% have selected a

family member to lead in next generation• 71% of companies have no qualifications for family

employment• 54% have shareholder agreements (“buy-sell”)• 38% have liquidity plan• More than 50% have regular formal valuations• Boards in less than 50% cases meet more than once

or twice a year

The Bad News

• In their first 5 years of operation, approximately 85% of entrepreneurial and family-owned companies disappear

• Among those that survive, only 30% are successfully transferred to the second generation of the founding-family owners

• Only 12% survive under current ownership to the third generation

• Only 3% of all family businesses survive into the fourth generation level and beyond.

Family …

meet Business

Case

Richard, Sr. 64

FounderCEO, DVM

Ann60

BookkeeperState senator

Grace39

DVM50% owner

Megann35

MBA, JD0% owner

Richard, Jr. 31

DVM0 % owner

Governance

1. Do we need directors outside the family?2. Are there skills and expertise that do not exist within

the family or board that would be beneficial to add to the board (e.g. IT, marketing, strategic planning, financial, etc.)?

3. What family members get a seat at the table and who doesn’t (e.g. minority shareholders, family members outside of the business with minority stakes or others with no desire to serve on the board)?

4. Are there advisers out there who could add value or expertise and an outside perspective without being on the board itself?

Family & Business Governance

Family Business

Ownership

Tagiuri & Davis (1982)

• Family meetings

• Family council

• Family office

• Board of Advisors

• Board of Directors

• Family office

• Manage-ment team

• All company meetings

• Conduit to BOD

Veterinary ownership is

harder than it used to be

Meet Dr. Vitulli

• Five locations and counting• Family owned florist shops growing up• Shared leadership and role clarification

have been critical to growth • Vitulli says, “The key to success, was

finding the right people to partner with.”• Cornell DVM ‘91

Preparing for Succession

• Regularly have a qualified professional analyze the clinic’s free cash flow. Is it realistic to think that a bank would lend money to someone interested in your practice?

• Advise your team that you’re beginning a ”long-term search” for a successor so they don’t get edgy when you have potential associates or buyers in to look over your hospital.

• Spend a few dollars keeping the inside and outside of the building nice. Your clients may tolerate a “vintage” look but potential buyers are more likely to want good curb appeal.

• Maximize contributions to tax-qualified savings such as IRAs and your 401(k) plan. Prepare for the chance that your hospital may not sell for the amount you need to fund retirement.

• Scan the available information on possible clinic purchasers. Might you cultivate a young competitor nearby? Does anybody at church or your favorite watering hole have a relative in veterinary school? NETWORK.

• Get to know the secretary at the nearest veterinary school admissions office. If an acceptance letter is headed to a kid in your town, four years later it might turn into an available associate. After that, who knows?

Three reasons to plan early

…for your (business) exit

1. You’re not immortal

2. You could burn out

3. Buyers might not love your small town

Christopher J. Allen, DVM, JD

Rethinking the way we

teach veterinary medicine

“Online modules containing consistent, high-caliber finance and business information taught by well-qualified professionals should be a requirement in veterinary education. Additionally, students should be required to study the various business models they encounter during their education, e.g. teaching hospitals, private practices, corporations and government organizations. Solid finance and business acuity is essential to the economic success of all veterinarians, irrespective of employment setting.”

“If there is one piece of advice we would give to all family firms dealing with succession, it is:

communicate.”

Chrisman, Chua & Sharma

One Word

Succession Checklist

Discussion

1. What excites you most about ownership?

2. What concerns you?

3. What role will your family play in:

• Your business / career choices?

• Your business ownership?

• Your business succession?

Succession Checklist

Connect