Sustaining a Legacy; Will your family business survive or thrive beyond the current economic crisis?
Family businesses have been a key part of the economic landscape for many years. According to the Baylor University Institute for Family Business, family owned businesses represent over 50% of the U.S. gross domestic product and represent approximately 90% of all US businesses. Clearly, the survival and future growth of family owned businesses will be a key part of the recovery of the US economy.
For southern New Jersey and Jersey Shore based family businesses, the issue is even more critical. The local economy has a legacy of family owned businesses that span several generations. These include a variety of businesses including family owned hotels, restaurants, bakeries, insurance agencies, accounting firms, restaurant suppliers, casino equipment suppliers, janitorial suppliers, large and small construction firms, etc. These businesses are as much the lifeblood of our local economy as are the casinos, colleges, hospitals, and government entities that represent some of the larger area employers. In fact, one could argue that the casinos would not get built or supplied, local residents would have many fewer choices to eat or shop, and tourists would have many less places to eat, stay, or shop if not for the entrepreneurial vigor and appetite for risk of our local family business community.
As we emerge from what has been the worst economic calamity since the Great Depression and a seminal event in our lifetimes, most business operators have got to be thinking about how they will position themselves to thrive in the next economic upturn, but more importantly, how to sustain their businesses in the long term. Answering that question requires first gaining an understanding of what economic recovery will look like for the region, and then acquiring and maintaining the tools and skills to thrive in the future.
Let’s start with the local economy. There are several drivers of the local economy including the casino and tourism industries, the real estate industry, education (including local colleges), government, health care, and the Atlantic City International Airport. In the short term, the casino and tourism sectors will be negatively impacted by the continued consumer malaise (as they pay down debt) and additional competition from surrounding jurisdictions. While Revel Casino will eventually open its doors, a shrinking gaming market and continued competitive pressures will very likely result in negative growth and shrinking employment. This will keep the local real estate industry in the doldrums as well. The few bright spots will come from government sector spending including ambitious plans by the South Jersey Transportation Authority and growth of the Atlantic City International Airport. The healthcare sector will also likely grow, even if pending reform is passed. Overall, we expect local economic recovery to be muted.
This is exactly where family businesses can be economic catalysts for the region and why our local family business sector must start thinking beyond their traditional tool chest. Finding new sources of business and growth opportunities will require the entrepreneurial skills and appetite for risk that most successful family business owners possess and that are specific to this sector. Family business owners who harness these skills will be richly rewarded over the next several years. Some specific strategies that family businesses should be looking to implement currently include acquiring weaker competitors, expanding geographically (either through physical expansion or shipping to more distant locales), restructuring balance sheets and reducing debt, and adding innovative new products.
Implementing these strategies will require the development of the next generation of family business leaders. As in any successful endeavor, leadership is usually the most important ingredient. Thriving family businesses are usually characterized by a strong entrepreneurial leader. Family businesses that thrive from generation to generation are those that identify the leaders of the future early on and prepare them for succession. This preparation usually starts at a very young age at the dinner table, proceeds through high school and college, and continues through young adulthood. The most successful family businesses send their future leaders out into the real world to learn best practices.
Beyond identifying a succession strategy, other key success factors for family businesses include optimizing the family business’ legal and governance structure, making sure the business is adequately and optimally capitalized (both debt and equity), having good financial and business management systems in place (including the development of key non-family members), creating wealth outside the family business through the use of retirement plans and real estate investing, etc., and creating an estate plan that allows for a seamless transition upon the death of the current generation. At our firm we refer to these as Blocking and Tackling 101 for family businesses.
With strong leadership, a succession plan, and these basic structures in place, our local family business community will be able to take advantage of any opportunity that may come its way. Whether expanding into new markets, purchasing competitors, or increasing market share, those firms that are positioned for success will have the highest probability of surviving into future generations.
About the author:
Cory Morowitz is the Chairman and Managing Member of Morowitz & Company, LLC, a CPA and business advisory firm located in Galloway New Jersey. The firm has created “Family Business Value Management,” a comprehensive one year program tailored to family businesses in South Jersey. The program combines classroom learning with internet tools and hands-on analysis to help family businesses reach their potential.
