The basics:

• NJBIZ panel says family-owned businesses need early succession planning
• Human capital strategy can preserve long-term business value
• Next-generation leaders can drive growth, continuity
• Tax and estate planning support ownership transitions

As part of NJBIZ’s latest virtual discussion, participants discussed how family-run business can survive and thrive across multiple generations.

Moderated by NJBIZ Editor Jeffrey Kanige, the July 15 panel featured:

• Mariel Giletto, a shareholder and business and M&A practice lead at Flaster Greenberg PC in Cherry Hill
• Rozleen Giwani, a partner at Woodbridge-based accounting firm Forvis Mazars
• Ed Leach, a partner and wealth advisor for Highland Financial Advisors LLC in Wayne

Topics covered during the 90-minute roundtable discussion include how to prepare for leadership transitions, how family dynamics can affect business decisions and strategies for exit planning. A more detailed recap of the discussion will appear in the July 27 edition of NJBIZ.

When it comes to the biggest questions that owners of family-run businesses have, Leach said the inquires he fields tend to be symptomatic of “a larger issue centered around either business alignment, personal alignment, or financial alignment.”

“And it really comes down to aligning a lot of what’s going on personally with different opportunities … in terms of managing human capital and different innovations … ” he said. “But really when it comes down to it, is we always ask our business owners, what are you trying to achieve?’’

“And, we use this analogy of three legs of a stool is business, personal and financial. If you don’t have that alignment, if you take one of those legs of the stool away, things fall apart,” he said.

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“A lot of the challenges are around things like AI, tax planning, estate, different legislative initiatives, all of those things are impacting family businesses, but most of what we focus on is aligning those three opportunities,” Leach explained.

Giletto said, “I think one of the unique challenges for family-owned businesses these days is baked into the fact that society and business is moving at such a quick pace now that family-owned businesses are, I wouldn’t say struggling to keep up, but are feeling the pressures of such quick changes.”

At the same time, she feels family-run ventures may have an advantage given the current climate.

“In this AI technology, fast-paced environment where we’re losing those relationships … I think that family-owned businesses are uniquely positioned to build trust because of the relationships that they have built throughout the longevity of the family-owned business. And I think there’s a longing for customers to get back to that feeling of a family that they can trust,” she said.

Family-owned businesses can blend traditional customer relationships with new technologies, giving them a competitive advantage. Unlike publicly traded companies, they can focus on long-term growth rather than quarterly results. That can help when navigating economic downturns and building multigenerational success, Giletto said.

Replay: Family Business Panel Discussion

Click through to watch the full panel discussion!

She went on to note that one of the biggest succession planning challenges is navigating differing perspectives. Rapid changes in technology and business practices can create communication gaps. While older generations stay involved in family businesses longer, it can sometimes lead to tensions as younger family members seek greater influence over the company’s future, she said.

“I’m seeing that constant push and pull from both directions and I see both sides of it. That is something that is unique to family-owned businesses in this constantly changing and evolving business environment at such a quick pace,” she said.

Leach agreed, adding “[B]ut it’s also the greatest opportunity for potential valuation growth in the future as well.”

That’s because technology and business management tools are creating new opportunities for these companies to scale and remain family controlled. A key strategy is involving the next generation early, gradually delegating responsibilities and including future leaders in decision-making, he said.

“[Y]ou are actually building a more valuable business because someone or somewhere that valuation is going to go up because it’s just a really well-run business,” Leach said.

Setting the stage

From a tax planning perspective, Giwani said some family-owned businesses aren’t as prepared as they should be.

A common mistake among family business owners is waiting too long to begin tax, estate and succession planning. Advisors say starting early – especially when business valuations are lower – can create significant tax savings; preserve more wealth for future generations; and provide greater flexibility for growth, ownership transfers or a potential sale, according to Giwani.

“The family governance becomes very important as well. We do that with a lot of our clients. We sit with their next generation, even when they’re in college, to kind of understand what their thought process is and see if they are interested,” she said.

Leach explained, “For us, regardless of whatever stage, we always start out and ask the question, why? Why are you doing this; why is this important to you; why is this business matter? How does it impact you both personally and financially?’”

“Two of our most precious resources is time and money. Every decision we make in life is a trade-off between one of those two things. So, starting a family business … is going to come under a lot of stress. It’s going to be a trade-off of time but also might be a trade-off of money,” he said.

“Dealing with the personal side, we call it the balance sheet. And getting all of that in order and creating alignment will often allow and create a de-stressor when it comes to them actually running their business,” he said.