Family business: a family jewel to be protected. But how?

Solvay, Maison Dandoy, Brooze, Eram, Lotus Bakeries, etc. There are countless renowned Belgian family companies. And for good reason - they represent 75% of the market in Belgium. Let us have a close look at these companies, which unquestionably shape the past, present and future of the Belgian economic landscape. 

Atfirst, therewas...  family entrepreneurship

Did you know that at the origin of any economy, there are men and women? A simple look back in time reminds us that the family has always been the source of economic impetus. Wasn't agriculture created out of the need to provide for the family? The same men and women, still grouped in families, were then led to professionalize the production and distribution of their crops, thus inventing the secondary sector, and so on. Valérie Denis, Director of the ICHEC Families in Business chair, shares with us her accurate vision of the economy: 'The economy has never led mankind. Entrepreneurs have been driving the economy since time immemorial, and to this day'. Let us look more closely at these men and women who have been entrepreneurs since the dawn of time.

What is a family business?

Unlike other companies, a family business brings together individuals with family obligations. These concern not only the continued development of the company's activities, but also the maintenance of the family's pride.

Although the definition criteria vary, the ICHEC "Families in Business" Chair defines a family business as a company which is owned and/or managed by at least two members of the same family. 

A figure to remember: 70% of companies in the world are family businesses. On a global scale, they are therefore an important factor for economic growth and prosperity.

In Belgium, family businesses represent 50% of employment. In other words, more than one out of every two jobs is provided by a family business. At home and abroad, they therefore play a considerable role in our economy. 

What is the key to their success? Their determination. Valérie Denis explains it: "Faced with financial crises, family businesses have always been an example of perseverance, and infinite and thoughtful audacity in the face of risk. The business is like a child who needs to be protected. Wouldn't you do anything to save yours?” 

The keys to atypical management

Multi-generational cohesion and the existence of a common interest are the main strengths of family businesses. But to what do they owe their performance?

RESILIENCE AND LONG-TERM PERFORMANCE

From the first generation to the next, vital importance is given to the sustainability of the company, its assets and its shareholders. It's simple: a family business must always be prepared for the next blow, and be twice as vigilant when investing for the future.

AS A GOOD FAMILY MAN 

We challenge you to find a family business where the employee, with or without family ties, is not the subject of real attention. This "family man" management is more than a characteristic: it is a true management method. Loyalty and humanism will always influence negotiations, which will further strengthen the identification of all generations with the brand (which often still bears the original surname). 

ANTICIPATION AND COMMUNICATION

In addition to managing a family business, its mode of governance is just as important. The adage "prevention is better than cure" takes on its full meaning when it comes to writing the rules of conduct to be followed in the decision-making process or in the transmission to a future generation. A concern for irreproachable transparency which avoids jeopardising intra-family relations or the survival of the company in the broadest sense. 

Through this mode of management and governance, family businesses are proving to be more resilient and sustainable than others. But how do you ensure these robust assets in the event of succession?

WHEN ONE GENERATION HANDS OVER THE BUSINESS TO THE NEXT

The transfer of a family business: a major challenge? That's an understatement. The company has grown, and so has the weight of the competition. Taking up the torch is not always easy, for the older generation or for the successors.

ASSIGNORS AND SUCCESSORS FACING THEIR CHALLENGES

When it comes time for a boss to hand over the keys to the next generation, there are many hidden challenges. This company which you have devoted most of your life to is in the process of changing ownership. As Valérie Denis explains: "The most delicate step is choosing the right successor.Who among the family members will have the right skills, vision and motivation to take over the company? And how can you ensure that each link in the chain, human or material, survives in the best conditions?”

On the other hand, the successor will have to fight for his or her legitimacy. The need to be legitimate in the eyes of the family and all employees is an inevitable pressure. Today, the responsibility of taking over the family business is fortunately more often dictated by choice, rather than obligation.

THE HEART OR REASON: NO TO IMPROVISATION!

For both of them, the psychological burden is enormous. Assignors and successors inevitably find themselves confronted with confused feelings and an ambivalence opposing the emotional and the rational. 

Undoubtedly, the most successful family business transfers are those which have been anticipated and prepared. In the majority of cases, family members prepare and train the future leader from an early age, so that he or she can ensure his or her future leadership role with reliability, efficiency and legitimacy. 

Family businesses with 8 or 9 generations of managers will tell you: to ensure benevolence and success, the transition of management or shareholding from one generation to another will indeed be prepared beforehand, and afterwards it willstill require the full attention of its stakeholders.

Protect and ensure the succession

Do you own a family business? You therefore want the maximum protection of your assets, family members and employees. Bart Chiau (Professor at Ghent University and Senior Expert at the NN Competence Centre) provides us with the main solutions proposed to company managers and partners: "If it is essential to surround yourself with experts for the tax and legal optimisation of your company, the same is true with respect to insurance." We dream of immortality, but we know that the death of a company manager or co-owner is one of the scenarios which must be anticipated by a company.

IT IS BEST TO BE PREPARED

The statistics speak for themselves: in the next 5 years, 1 in 4 companies will be transferred. In the best case, these transfers are planned. In others, unfortunately, they happen unexpectedly. No one is safe from a serious accident, illness or death. Have you ever considered the amount of inheritance tax that will be paid in the event of the transfer of your family business following your death? Here, as in many other contexts, prevention is better than cure. Anticipating and insuring these unavoidable costs not only protects your offspring from any financial worries, but also ensures the sustainability and continuity of your company in the broad sense. 

COMPANIES FACING RISK

Aware of the importance of business continuity and job retention, the insurance market has carefully examined the appropriate coverage to protect the activities of family business managers. Are you in the line of fire? The death of the company manager, whether alone or in partnership. Indeed, the transfer and succession of a business in such circumstances generates costs which can represent considerable amounts, depending on your active capital. Fortunately, solutions exist to protect the next generation:

• Company director's insurance: this insurance reserves a capital intended to ensure the continuity of the activity if the director dies in the performance of his or her functions. This capital is invaluable in searching for and training future business leaders. 
• Partner insurance: providing capital to surviving partners in the event of the death of another partner allows them to take control of the deceased partner's shares. This possibility must be provided for in the articles of association. By selling the shares of the deceased partner to the surviving partner, the management of the company thus passes entirely into the hands of the partners, who are now able to ensure its financial maintenance. 
• Inheritance insurance: inheritance tax paid by heirs sometimes represents huge sums of money. If your company meets the conditions defined by the various regions, inheritance tax amounts to 0% in the Walloon Region, 3% in the Brussels-Capital Region and Flanders, 3% in the case of a direct inheritance (child or partner) and 7% (to a third party beneficiary). Inheritance tax is even higher if you do not meet the legal requirements. These substantial amounts are not always easy to pay. Inheritance insurance provides capital which allows heirs to pay the inheritance tax. 

In addition to the field of succession, let us not forget that a company manager, like any other employee, could one day be faced with a long-term illness or prolonged work incapacity. In this case, it is of course also necessary to have the best possible insurance. Protecting yourself with good coverage and insurance therefore guarantees the continuation of your activity and the financial protection of your co-owners and your family. But in the eyes of the state, the most important thing is still to maintain jobs. For this reason, facilitation measures are offered to companies which meet certain conditions. The inheritance tax at 0%, 3% or 7% and the endowment tax at 0% are proof of this.  Inheritance tax is higher if you do not meet the legal requirements.

ADVICE AND LONG-TERM PROTECTION 

Anticipating and benefiting from professional and personalised advice over the long term guarantees a smooth succession, whether unexpected or not. At the crossroads of your professional and private life, your company deserves your full attention in terms of estate protection. Protecting your interests and those which make up the history of your company and your family is invaluable. Be sure to find the right advice. 

Would you like to know more? 

Which insurance for your family and your assets? What is the premium for your death coverage? Discover all of the innovative solutions offered by NN and ask all of your questions during an appointment with one of our experts 

About the ICHEC Families in Business Chair 

Founded in 2011 by ICHEC and directed by Valérie Denis, lecturer and co-author of several books on management, the "Families in Business" Chair aims to observe and decipher the evolution of entrepreneurial families from generation to generation, to raise awareness of their specific type of management and to make future generations aware of the challenges of managing a family business. 

The Chair is at the origin of various publications, based on the collection of hundreds of testimonies and intra-family interactions:

• « Bijoux de famille »
• « Dans les yeux de la Next Gen »  
• « Zooms sur les conjoints de dirigeants »  

These publications are available for sale via the zoomssurlesconjoints.be websiteor by email via: family@ichec.be.