An Online Publication by Generational Equity
Family businesses account for 90 percent of all businesses in the U.S., both large and small in size, according the Small Business Administration. Needless to say, many Americans work in an environment with family dynamics.
If you are the owner of a family business, then you know that a special set of challenges can accompany running it. We discuss a few problems today and provide suggestions to resolve them. [Read more…]
A family owned business “is a business in which one or more members of one or more families have a significant ownership interest and significant commitments toward the business’ overall well-being.”
In this post Generational Equity reviews, based on our experience, three common myths that we often see and hear discussed about family owned business. [Read more…]
Running a small business has its challenges, but the challenges of owning a family-owned business extend further. At Generational Equity, we understand this as we are a privately held business ourselves.
The family owned business oftentimes has a “romantic” appeal to it. However, when the smoke and lights fade, there are certain challenges that family-owned businesses must prepare for. There are risks that the family owner is prone to that a small business without the family entanglements is not.
According to a Pepperdine University article, some of the risks include:
“succession planning, marriages and divorces, complicated relationships as well as routine issues that emerge around turf battles, shareholder control, compensation structures, and processes for strategic decision-making.”
The same article contains outstanding content regarding ways to plan for challenges that are faced by family owned business owners. The pitfalls the article discusses include:
For the family-owned business owner, it may be time to take a look at some of the foundational items of your business structure and documentation. Not only will this set your business up for greater success, but when you are preparing to sell your business in the future it will allow you to do so standing on a stronger piece of property.
© 2011 Generational Equity, LLC All Rights Reserved
According to a publication by the Small Business Administration, approximately 90% of American businesses are family owned. One of the unique challenges of running a family owned business, is the tie that forms between the family unit and the business.
For many business owners, the business in itself is like another child, sometimes making it difficult to make the correct decisions for both the family and the business. Having proper boundaries set in place along with advisors you respect will help to bring a healthy separation between both. This healthy division is of critical importance to the success of both the family and the business.
The Family Unit
When a business begins to become too attached to the family, relationships may begin to suffer. In order for marriages to stay strong and relationships with children to be fair and healthy, it is important that a life balance be found for the business owner, although that can be difficult. Some suggestions to create this healthy division and keep the family unit strong, despite the success of the business are:
When the Business Is Too Close to Your Heart
When the business has become a family member of sorts, it can make it difficult to make strategic decisions, thus jeopardizing the profitability and success of the business.
The New York Times posted a blog that discussed this very issue. In the blog they discussed a business owner, Julie, who loved her family business. Her mother had been very successful and Julie was also successful when she bought the business.
However, when Julie fell ill, she was not able to run it as effectively. Rather than selling the business while it was still extremely profitable, she held on to it as it degenerated in value. Her heart was so tied to the business, that she couldn’t bare to lose it.
This decision caused her to sell her business for much less and for her children to have to handle the entire matter once Julie had passed. The tie between Julie’s business and herself caused her to lose money that could have paid for her grandchildren’s education, and it added significant stress to the family she was leaving behind.
Allowing the input of professional advisors when she fell ill could have helped her have the information she needed to make a decision that would produce a favorable outcome.
It can be very difficult to maintain healthy boundaries while running a family business, but it is important to set up healthy guidlines to help you do so. It’s what both your family and your business needs.
© 2011 Generational Equity, LLC All Rights Reserved
These days, the familiar description of private business ownership, the “mom and pop operation,” fits only a small fraction of companies. Fewer households are traditional married couples these days, and even when married couples own a business one of the spouses is typically engaged in some other endeavor.
Even so, there are many mature businesses whose owners are ready to pass the operation and the equity to sons or daughters. And while business ownership over a series of generations has that “mom and pop,” “apple pie” wholesomeness about it, the truth is that selling a company to relatives may be a poor business move.
Look at it this way: A stranger walks into your office one day and offers to buy your business. The stranger has an attractive price in mind and may even be open to negotiation.
Will you sell? Probably not, because you are convinced that there are other potential buyers out there. A big factor in your reluctance is that you are not sure what the company is really worth to qualified buyers.
A business owner should be just as hesitant about selling to a familiar buyer as he is to a stranger, and there are many reasons.
The best prospect is a premium buyer, who sees the company’s future worth and wants to exploit it. While that prospective buyer may eventually be someone already involved in the company, the seller can’t be sure until the sale is presented properly to a larger market.
Here at Generational Equity, Dwight Jacobs has seen some discouraging factors in the sales of companies to close relatives and associates. Jacobs, executive vice president for mergers and acquisitions, said he would like to see sales to family members and associates succeed for sentimental reasons.
“But in the best business practice, we have to set sentiment aside for the good of all concerned,” Jacobs said. He enumerated “just a few reasons why close-in sales can be disappointing.”
Even if it’s almost a cinch that the business will be sold to a relative, the owner acts in everyone’s interest by undertaking the merger and acquisition process in the marketplace.
“Generational Equity provides a high-value, low-cost solution to all the problems an owner is going to encounter when selling a company,” Jacobs said. “The M&A procedure assures the seller that the company brings full value, even if the buyer is that relative or associate. At the same time, the buyer acquires the company with confidence that its value has been established.”
Here’s why:
“It would be nice to think that companies and their owners as well as their new owners benefit most when succeeding generations take over and reward their forebears for the opportunity,” Jacobs said. “Sometimes that happens, but when it does, all should be certain that the deal is what’s best for everyone.”
© 2011 Generational Equity, LLC All Rights Reserved