The Staffords could end their headache tomorrow. In an average week the phone rings twice at Kiva with someone inquiring whether the business is for sale. That gets the Staffords to wondering why they continue to hold on. But if they sold, they would be locked into an earnout -- and would lose control. "Would the people here be protected? No," says Ruth.
"When I look around this place, I see a lot of people who have worked here a long time. They are family to me. And besides," she adds gamely, "this can be a lot of fun."
WILL THE FAMILY BUSINESS SURVIVE?
Kiva Container is like any of the other 16.8 million small family-owned businesses scattered across the United States. As an economic universe, those companies chip in anywhere from 30% to 60% of U.S. gross domestic product, or $2 trillion to $4 trillion.
The graying of the American CEO will play an increasingly important role in those kin-driven companies over the next decade. The relative share of employees aged 45 to 64 will expand by more than 105%. That's great for productivity. But it ultimately means that more CEOs will be passing the torch -- and vast fortunes, too -- to their children. Bob Brockhaus, the Coleman Foundation chair in entrepreneurship at St. Louis University in St. Louis, estimates that over the next decade, $1 trillion worth of the small-family business economy will pass to the next generation.
Research suggests that family businesses have a short average life span -- 24 years, which happens to be the average tenure for the founder. Fewer than one-third of family-owned companies last into a second generation; fewer than 16% make it to a third.
If the Staffords trust the managerial capabilities of Tom, they have time to make provisions. Then again, they'll have to contend with hefty estate taxes, which could be anywhere between 55% to 85% of all income over $600,000 passed on. Succession planning has never been so critical yet so overlooked as the savior of family businesses. -- Karen E. Carney
BATTLING BUREAUCRACY
If small companies are at a disadvantage in dealing with the banking and legal system, they suffer the same problem with the bureaucracy. In a 1994 survey by the National Association of Manufacturers of its members classified as "small manufacturers," 33.19% of respondents cited government regulations as their most serious problem. That was the most common response, followed by the cost of health insurance at 24.42% and increased taxes at 11.36%. (See chart below.)
Meanwhile, as regulation has steadily increased in recent years so has its cost. According to A Citizen's Guide to Regulation (Susan M. Eckerly, ed., Heritage Foundation, 1994), a 1978 report by the Center for the Study of American Business at Washington University in St. Louis estimated total regulatory costs in 1976 at $63 billion (in 1988 dollars). A 1993 study by Thomas Hopkins, professor at the Rochester Institute of Technology, put that figure at $615 billion (also in 1988 dollars) -- or about 10% of gross domestic product. Today government employs 18.7 million people versus 18.1 million employed in private-sector manufacturing. Small-business owners, meanwhile, spend at least one billion hours a year filling out government forms, according to the U.S. Small Business Administration. -- K.E.C.
THE DATA
Which of the Following Is Your Company's Most Serious Problem?
Government regulations 33.2%
Cost of health insurance for employees 24.4%
Decreased cash flow resulting from increased taxes 11.4%
Finding and keeping qualified employees 10.3%
Environmental regulations 8.1%
No response 6.0%
Litigation 3.7%
Difficulty obtaining financing 2.9%
Source: National Association of Manufacturers, survey of 2,100 small U.S. manufacturers, 76% of which have annual sales of less than $20 million. Washington, D.C., 1994.
Which of the Following Tax Incentives Would Have the Greatest Positive Impact on Your Company's Growth and on Job Creation?
Restore investment tax credit 41.4%
Repeal individual income-tax increase 27.6%
Eliminate double taxation of corporate dividends 10.8%
Restore capital gains differential 7.7%
Create incentives for individual savings and investment 7.4%
Did not respond 5.1%
Source: National Association of Manufacturers, survey of 2,100 small U.S. manufacturers, 76% of which have annual sales of less than $20 million. Washington, D.C., 1994.
Threats to Companies: Percentage of Respondents saying 'Severe or Serious' Threat
Company Size
< $3 million > $3 million
Inadequate succession planning 58.5% 32.8%
Inadequate or inappropriate financing 47.5% 20.6%
Inadequate managerial skills in key posts 45.9% 23.2%
Unpreparedness for economic downturns 36.8% 25.5%
Inability to respond to market changes 29.9% 30.6%
Environmental regulations 29.4% 38.3%
Nonenvironmental regulations 17.6% 21.9%
Tort litigation 14.6% 21.1%
Employee theft or fraud 12.6% 11.4%
Foreign competition 10.7% 24.1%
Source: "1994 Survey on Trends and Future Developments in Management Consulting to Small Business," the Management Consulting Services Division of the American Institute of Certified Public Accountants, January 1995. n
