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CRE Insights Blog

What is a Family Business

In this video, Richard C. Wilson discusses exactly what a family business is. Typical family business have the whole family involved in the business. This can often lean to succession and governance problems. To learn more about family offices please visit http://FamilyOffices.com Hello, this is Richard Wilson coming to you from Kuala Lumpur in Malaysia. I’m here to speak at a family office conference. I just wanted to talk to you real quick about what is a family business. Before I get started, you can see the Petronas Towers here behind me. Pretty cool modern part of the city here. What I wanted to talk about was really what a family business is and why it’s important and how it affects family offices, the investment landscape, those that work with high net worth investors, et cetera. Really a family business is what it sounds like. It’s a business ran by a family, but many would say, “Well, isn’t every business … most everyone has a family, so how do you differentiate?” And really the difference is that typically multiple generations are involved and multiple family members are running the business. It could be brothers. Maybe now they’re in their 50s and 60s and the next generation is getting involved. It could be an 80 year old whose sons and grandsons and daughters are helping run the business. So there are trust and estate issues to deal with. There’s structuring issues to deal with. Many times things get pretty complicated when some siblings can feel like some members of the family are being given preference in the business or able to make a lot of money by working in the business. But perhaps that’s not their passion; they want to be an artist, they want to be an engineer, not a business manager or owner, but they feel like they’ve been slighted by the family by not getting that same income level and wealth, growth opportunity that the other family members are getting. This can lead to succession problems and governance problems. You don’t want a brother-in-law hiring his dorm roommate from five years ago, who happens to be his best friend, as a consultant and paying him $5,000 an hour just so he can hang out with his friend. Or give out jobs to relatives that aren’t qualified just because they’re relatives, et cetera. So there are a lot of challenges that are unique to having a multi-generational family business that really aren’t around when you’re just a sole entrepreneur or you’ve got a small business that maybe just has three to five professionals you just started in the last 10 years. Or most common, you’re a large midsize corporation with a diversified cap table or publicly traded company, it’s more professionalized than a traditional family business. The last thing I’ll say here about what is a family business is that … well, I just gave examples of what’s not a family business. It’s important to know that just because it’s a family business doesn’t mean it’s small. I’m helping a client right now look into purchasing a $20 million a year, $5 million EBITDA business. We typically, during a year’s time, will have several $10 million a year plus businesses approach us that are family owned. Many oil and gas businesses our family ran and have 30 million, 50 million, $100 million plus revenue, and there are hundreds of family businesses that have multi-billion dollars in revenue and are still controlled by just one family or two families or an extended family. So it doesn’t mean small business. In fact, if a business has survived to last for generations, then you can bet they’re doing something right because they’ve been able to support typically 10, 20, 50 plus employees and survive over a 15, 20, 30 year period. And they’ve been able to figure out quite a bit over that time and know the competitive landscape really well and typically customers know their brand really well within their niche.

About the author

Richard Wilson