Family businesses serve as ballast for economy

Family-owned business leaders in West Michigan are committed to the state, with more than 90 percent producing products and services within the state, according to survey results released by Grand Valley State University and Western Michigan University.

The Family Owned Business Institute in the Seidman College of Business at Grand Valley and the Haworth College of Business at Western Michigan University launched a study in 2013 to explore the magnitude of family-owned businesses in the region.

Of the 690 family businesses in the database, 156 completed the survey for a 23 percent response rate. 

“The role family-owned businesses play in the local economy is starting to emerge,” said Joseph Horak, director of the Family Owned Business Institute at Grand Valley. “They are more risk averse, take on less debt and have a longer-term focus. While they may not be as highly profitable during an economic upswing, when the economy has a downturn, family businesses actually serve as ‘ballast’ in our local economy.”

Significant findings include:

• The survey found that when anticipating reduced earnings, family-owned businesses indicated they would be most likely to reduce distributions to owners (86 percent) and/or reduce salaries to family members (58 percent) before they would consider laying off an employee. Layoffs were considered an absolute last resort. One respondent said, “We would not jump to layoffs without doing many things with our staff first — cutting hours, reducing wages or benefits.” Family businesses provide an important buffer during an economic downturn in comparison to publicly traded companies.

• Typically only 30 percent of family-owned businesses survive into the second generation, while only 12 percent of family-owned businesses make it to the 3rd generation, and less than 5 percent make it to the 4th generation. Fifteen percent of the businesses surveyed were in the 3rd generation of ownership, and 11 percent were in the fourth. These higher numbers suggest a strong commitment of business families to maintaining the legacy of family-owned businesses in West Michigan. Family businesses in West Michigan are clearly beating these odds.

• Only about 20 percent of family-owned businesses have a formal, written succession plan in place. While this lack of formal planning is not unusual among family-owned businesses, it is concerning. The highest priorities of survey respondents in terms of succession planning were “stability of the firm” and “presence of a competent successor.”

• Survey findings highlight the need for future programs and workshops for family-owned businesses in the areas of succession planning, emergency succession planning, and estate planning. One of the outcomes of this research is an effort to begin providing some of these tools in an effort to help support the long-term prospects of the local family businesses.

Surveys were sent to family-owned businesses in 28 counties on the west side of the state, including Allegan, Antrim, Barry, Benzie, Berrien, Cass, Charlevoix, Emmet, Grand Traverse, Ionia, Kalamazoo, Kalkaska, Kent, Lake, Leelanau, Manistee, Mason, Mecosta, Missaukee, Montcalm, Muskegon, Newaygo, Oceana, Osceola, Ottawa, St. Joseph, Van Buren, Wexford.

Later this year, the results of a study demonstrating the economic and social (philanthropic) impact of family-owned businesses on West Michigan will be completed by this research team.

For more information contact Joseph Horak, director of the Family Owned Business Institute at Grand Valley, at (616) 331-7278 or Laurel Ofstein, assistant professor of management at Western Michigan University at (269) 387-5417.