Financial Performance & Family Firms

Studies show that family firms outperform their industry groups and their non-family counterparts

• Family business's net income to net worth ratio was 75% higher than manager-controlled firms;

• Family firms provide a greater return on investment, have a better-managed capital structure and more efficient allocation of resources (1969, Monsen).

• A 1986 study by US News and World Report found that of the 47 largest family firms, 31 outperformed the Dow-Jones index.

family firms• tendency toward long term strategies rather than a need for

quarterly results;• an aversion to debt;• and their inclination to reinvest dividends (Gallo, 1994).

• A number of studies have shown that family firms outperform their industry groups and their non-family counterparts.

• In 1969, Monsen found that family business's net income to net worth ratio was 75% higher than manager-controlled firms. He concluded that family firms provide a greater return on investment, have a better-managed capital structure and more efficient allocation of resources.

• Jaffe (1990) states that a 1986 study by US News and Word Report found that of the 47 largest family firms, 31 outperformed the Dow-Jones index.

• 1989 Survey of Consumer Finances (SCF), have forecast bequests from 1990 to 2040 to be $10.4 trillion (Avery & Rendall, 1993). From the data in Table 1 we see that annual bequests rise from $84 billion in 1995 to $143 billion in 2000 to a high of $335.9 in 2015.

Failure to plan for transfer of business to next generation

• Without planning, heirs often have to sell the business in order to provide for for retirements and estate taxes.

Forecasted Bequests by Year

Year Total ($Bill.) Number ('000) Mean ($) 1990 39.4 900 43,814 1995

84.3 1,506 55,951 2000 143.8 2.202 65,289 2005 216.9 2,846 76,194 2010 286.2 3,255 87,918 2015 335.9 3,389 99,130 2020 334.5 3,135 106,717 2025 288.5 2,650 108,870 2030 201.6 1,881 107,180 2035 106.8 1,090 97,997 2040 40.7 417 97,636

Total 10,365 114,953 90,167