Family-owned companies - large and small – are the foundation of the nation’s business. How important are these companies to the nation’s economy? Consider these statistics:

• More than 80 percent of all businesses in the United States are family-owned.
• One third of Fortune 500 companies are family firms.
• Family businesses account for 50 percent of the Gross Domestic Product.
• Family firms employ more than half of the nation’s workforce.

   That’s the good news about family firms. Now here’s another, more sobering statistic: The average life span of a family-owned company is 24 years. Two-thirds of family businesses fail to make it to the second generation - and 90 percent fail to make it into the third. In fact, taking the company successfully into the “cousin” generation is one of the greatest challenges for family businesses.

Family firms face unique challenges - for example, the impact of kinship on decision-making. In a company where employees are not related, personnel issues, pay and benefits, reporting and organizational charts all can be addressed solely on the basis of what works best for the company as a whole.

When it’s family, those issues can become far more complicated If a department head isn’t making the grade, you might want to make a change – but what if it’s your brother? If the board decides the CEO needs to go, this difficult decision becomes even more complex when the CEO is mom.

And then there’s business succession - perhaps the primary challenge for family businesses. How do families plan for the retirement of the company founder? What if the parents die suddenly? If there are several children, who runs the show in the next generation, and who takes a subordinate role?

What if one family member doesn’t want to be involved in the company and wants to sell? What if one of the family partners gets divorced? What kind of ownership does the ex-spouse and his or her have in the company?

These can be daunting questions, particularly when the decisions must be made in the complex context of family relationships. Yet the consequences of failure to develop strategies to meet these challenges can be devastating. When a family business fails, the result can be catastrophic for several generations.

Not every contingency can be foreseen, yet planning can help you beat the odds and take your company to the “cousin” generation. These are some of the key steps to success as a family business:

Seek out good advice. The best plans involve a team of advisers - your attorney, financial services provider, accountant and other experts can help you devise strategies. For example, your financial services provider should provide a selection of products and services to meet your company’s unique needs, while bringing you into contact with experts in financial planning, investments and insurance strategies tailored for a family-owned firm.

Treat your business like a business. Establish a board of directors that includes non-family members who have expertise in law, accounting, finances, human resources and other areas and can help you make business decisions. Set up training programs for all employees – family and non-family alike. Establish clear guidelines for compensation and benefits. Conduct periodical reviews of all employees. Hire outside accountants and conduct regular audits.

Plan for accidental loss. It’s not uncommon for family members to travel together for business and personal vacations. Get advice from your insurance provider about “key man” insurance and how your company can continue after the catastrophic loss of one or more family members.

Discuss divorce. Ask your legal advisor about strategies you can put in place when family members who have an ownership stake in the firm are divorced.

Plan for succession. Planning for the ownership and management of your company in the next generation - and putting that plan into motion - requires careful consideration. Plans may range from selling the business to the next generation to establishing trusts or setting up a Family Limited Partnership (FLP).

For example, an FLP can help you plan for transferring assets to your heirs while maintaining control over the business, minimizing taxes and providing flexibility. FLPs are complex, and they’re not right for every company. Your advisors and board of directors can help you decide if an FLP is the right plan for your company – and they can help you with other issues of succession.

Communicate. Clear communication is essential. Schedule regular, frequent family meetings. Set agendas and stick to them. Write a mission statement for the company, and establish codes of conduct. If your company’s vision is clear and in writing, there is less opportunity for distracting disagreements.

Planning, communication, teamwork - put these into practice for your family firm and your company could be one of the success stories that spans generations.

(Editor’s Note: Sarah Lee is a Business Relationship Manager for Wells Fargo in Port Orchard. She can be reached at 360-874-2788.).