FAMILY BUSINESSES NEED TO PREPARE FOR TRANSITION TO FUTURE

Don E. Scott has spent most of the past 15 years working with family businesses.

Scott, a partner and associate of the Arthur Andersen Center for Family Businesses at St. Louis, works with businesses to help provide for a smooth transition from one generation to another.

This area has a high number of family owned businesses, with some of them in the third- and fourth-generation category.

Many family owned companies are not prepared to transfer control to the next generation, said Scott, who has been a frequent visitor to the Cape Girardeau and Southeast Missouri area. One of the biggest problems facing family companies, he said, is communication, or lack of it.

A recent national survey, sponsored by the Arthur Andersen Center, and conducted with Kennesaw State College, Marietta, Ga., and Loyola University, Chicago, reveals that 49 percent of more than 3,900 family businesses participating in the survey do not have strategic business plans.

"This is the first study large and comprehensive enough to give a truly representative snapshot of this important part of the American economy," said Scott.

The poll focused on companies with revenue exceeding $1 million a year.

"A slight majority, 51 percent, do have strategic plans," said Scott. "But, some of these plans are not documented." In many cases, noted Scott, only dad knows about the plans, and many top managers have no knowledge of the plans.

Scott, who has worked with all sizes of businesses, from the very small to the large companies, emphasizes that "estate planning is crucial."

Many family business owners are so hard-working, dedicated and contribute so much to their business that they don't think about dying, or what will happen to the company, noted Scott.

This can be costly, added Smith, who tries to impress on people that estate planning is critical."

"It's a crime to let half a business go to the government because of a lack of estate planning, said Scott. "The estate rate is 55 percent for many of these companies."

There is a lot of flexibility to reduce the taxes through estate planning, so the business is in a position to withstand the impact of the estate tax system, Scott added.

The survey revealed that most family business owners are frustrated with government regulations and taxes, which make it difficult to maintain a competitive edge.

The survey also revealed that one in four CEOs plan to retire within the next five years, but 70 percent of them have not named a successor. The poll shows that most will tend to draw their successors from within the family.,

Scott said another major poll finding showed ignorance of the impact of estate taxes on a business transfer and how to cut the tax bite.

"Thirty-eight percent of those polled have no knowledge of the amount of estate taxes that have to be paid," Scott, who added that on a $3 million taxable estate, the tax rate is 55 percent."

The survey also revealed that a third of the companies surveyed engaged in international trade, and that of the almost 100 business polled in Missouri, 90 percent expect revenues to increase over the next five years and 62 percent expect to add workers. In Illinois, 92 percent of the companies expect more profits over the next five years.

Scott, in his work as a family business consultant, interviews family and non-family members of companies on a one-on-one basis, starting with dad.

There are about 800 family businesses in the area Scott serves, from St. Louis as far west as Springfield to the Arkansas state line, and the southern half of Illinois.

This does not include thousands of very small businesses that usually do not find consulting cost-effective.

Scott and the Arthur Andersen Center provide creative solutions for clients through audit, tax, business advisory and specialty consulting services.

Scott, a native of Arkansas and graduate of the University of Central Arkansas at Conway in 1980, worked in family business consulting 15 years in the Arthur Andersen Oklahoma office, before moving to the St. Louis office.

Scott has written a number of articles and is a frequent speaker on family business and estate planning issues.

The St. Louis Arthur Andersen Center is part of the Arthur Andersen Worldwide Organization (AAWO), the world's largest professional services provider with more than 73,000 employees in 70 countries.