When it comes to family business, myths and legends run rampant: Nepotism. Irrelevance. Incompetence. Succession disputes. Instability. Feuds. Failure. And, perhaps the most harsh — they just can’t compete. We’re here to tell you that much like Pop Rocks and Coca-Cola killed Little Mikey, these urban legends are all sizzle, no pop.
MYTH: Family businesses stay in the family.
Reality: Pricewaterhouse Coopers (PwC) found just 55 percent of family business owners intend to pass their business on to the next generation.
MYTH: Family business always means cushy jobs and a fabulous inheritance.
Reality: According to PwC, only six of 10 (62 percent) family business leaders reported having sufficient resources to divide their assets fairly between all heirs, and that doesn’t necessarily mean millions. Furthermore, it’s worth noting that roughly two-thirds of family-owned and -controlled businesses do not survive the founders’ generation. They sell out, they merge, they close their doors, they quietly disappear. Sometimes their ownership simply becomes dispersed so far beyond the original family group that they become, in effect, public enterprises. The point is that family business, like any other business, isn’t necessarily forever.
MYTH: Family businesses are just small potatoes.
Reality: According to this Forbes article:
“The view that family business are all small- or medium-sized companies is disproved by the Forbes list. Take a look at this year’s tally and you’ll see that some of the world’s largest companies are family controlled, proving that with proper management, family business are built to last.”
MYTH: Family businesses are all mom-and-pop operations.
Reality: Ford, Campbell’s Soup, Cargill, Siemens and Mars are all essentially family businesses. They are multi-billion dollar enterprises, among the largest on Earth. Wal-Mart, more than 30 percent owned by heirs of Sam Walton and with a Walton as chairman of the board, is the world’s largest company, period. Clearly, family businesses are as diverse as business itself.
MYTH: Owners plunder family businesses for their own gain.
Reality: Not true. According to Regeneration Partners:
“Within the C corporation structure, which is what 55% of family businesses decide to form, 32% are able to pay dividends quarterly or at year-end. If there are retained earnings of $10,000 (for simple analysis), this is an average annual breakdown: 54% goes to profit, 25% goes to annual expected payouts, 18% is reserved for cash flow, and only 3% goes toward family needs[…] The most successful family business owners don’t take a dime out of their businesses, even to compensate for work completed by a partner, until hitting a set earnings/retention formula that guarantees the business will continue to operate debt-free for six months, with adequate cash flow to meet all payables on time. That’s one measure of success.”
MYTH: Family firms don’t impact the economy.
Reality: Actually, family businesses dominate the economy. Take another look at the Forbes list, or read this article from our archives. Family owned businesses contribute half the gross domestic product.
What’s the biggest small business or family business myth you’ve encountered?