A Business Owned and Operated by a Family is One of the Oldest Business Structures that Exists

While family businesses have been around a long time they can also be one of the most difficult structures to get right (and to keep it that way) over several generations what with the co-mingling of commercial needs and emotional influence.

Many of the traits that foster the growth and development of a great business – driven entrepreneurial-ism, a willingness to take significant risks and at times being cold and calculated – can create profound complications in family relations, especially for parents trying to be both a boss and a parent.

If you own your business (be it full ownership or a sibling partnership), you have worked hard to shepherd that business to where it is today. There does come a time however, when it is prudent to develop a plan to exit from that ownership position. The reality is that unless you are planning to wind down your business, your business will be “sold”. It may be sold to family members, to an employee group or a third party. The real issue is to whom do wish to sell your business and how much value do you expect to get for the business from that preferred purchaser.

Any Transition in Ownership in a Family Business Always Produces Stress and Strain on Family Relationships

 

During inter-generational leadership transition the stresses and strains become much more critical and potentially destructive to both the family and the business.

Regardless of your preferred purchaser, the work that is required to sell your business is extensive. There are however, significant differences in where the work should be focused depending on the choice of preferred buyer.

If the decision is to sell the business to a third party or to the employees, there will no doubt be some work dealing with family issues regarding “letting go”. That effort however, will be significantly less than the work that needs to be done “tidying up” the business for a sale to a third party. If the decision is to transfer the business to next generation family members, the issues that arise are many, they are complex and not addressing correctly can have disastrous results for both the family and the business.


The Most Sensitive Issues are Ones that Arise When Family and Business Perspectives Collide.

That overlap needs to be carefully managed and monitored in order to ensure a successful transition from one generation to the next occurs. Some major areas that need to be managed include:

  • A well designed and formalized process to ensure everything that is needed is addressed
  • Communication among the family members to ensure everyone is aware of the process
  • Communication with senior management as their role in the early years after the transition is crucial
  • Communication with suppliers (including banks) and major customers as they will want to know how the transition will impact their relationships
  • Clearly defined roles and responsibilities among the outgoing and incoming leaders
  • Reconciling ownership without leadership for the outgoing generation
  • Reconciling leadership without ownership for the incoming generation

Some Transitions are Easier than Others

Some families are confident in their ability to navigate through a successful transition without any external assistance other than lawyers and accountants. More and more business families however are realizing that without a neutral and trusted advisor who assists in a holistic manner, there is a greater risk of the transition process becoming bogged down or short circuited due to frustration among the participants.

Erb and Erb Financial Services has an advisor on staff who is a specialist in consulting with family business before, during and after an inter generational transition. Having worked in and managed his family’s businesses for more than 20 years and consulted with family business for over 10 years, he understands from first hand experience the issues associated with such a transition.

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