Advice When It Comes Time To Transition the Family Business
Did you check my blog because you are a business owner moving on? Few decisions are as individual and personal for the owner of a family business than the decision to move on. Sometimes moving on simply means moving on to another business, hence the expression “serial entrepreneur.” Sometimes it means transitioning to a time when you can finally relax and do the many tasks, which might include volunteering or travel that you have been putting off with the pressures of day to day administration.
Health might factor into your decision or passion.
Based on the information given on https://www.businessvaluationdarwin.com.au/how-to-value-a-business.html, one thing you can try to avoid is closing your doors leaving nothing behind. As with all planning, you often can choose in advance. Business succession difficulties run the gamut from personality differences, difficulty in convincing clients to stay with the new owner long enough to make the sale attractive, and solvency if there is a long term buy-sell agreement. Even where everything else works, and even when family is involved, the emotional effect of loosening control over a business that might have taken a lifetime or even generations to build can be traumatic.
Here are some issues to take into account.
- The business needs to work without you. Giving up control of a business involves stepping back to see whether it could run on its own. This is a tough transition for someone who has invested years of hard work and begins to believe he or she is indispensable. It is important not to be indispensable or by definition, the business might not survive without you.
- Gradual transitioning can help. Sometimes business owners take on managers who, over time, come to know how the business should run. This makes the transition easier. In families, stock transfers over time can gradually increase the participation of the new person in charge. Note that this also has estate planning consequences. If more than one adult child is involved, roles can be developed depending on the special skills of the parties. If one child is going to assume a dominant role, then consideration should be given to how this affects inheritance overall and the perceived fairness in the family so that no one sabotages the arrangement.
- Consider Buy-Sell Agreements. Where others are involved in the business, there should be discussion in advance regarding buy-sell agreements. Funding can be by life insurance or other means. If you have children, family, or current partners who can effectively run the business, involve them early.
- Decide whether your business is marketable without you. Sometimes your business is primarily good will based on your unique skills and talents. It needs to have value or perceived value even if you are not around.
In “How Do Strategic CEO’s (and Owners) Work Themselves Out of a Job?” www.thiswayoutgroup.com, Kerri Salls made the point this way:
“When you want to sell your business, you want to command the highest possible value. For your business to merit the highest possible valuation, you must prove to the business appraiser and your prospective buyer that the value is in your business, not in you the owner…”
The skills involved in divesting yourself of your business are very different from the skills involved in startup. During startup, the business owner does anything necessary himself or herself to make it work. Here are the skills to sell.
“…1. Create systems for everything. If you have systems, make sure they are documented.
2. Delegate everything. When your business can operate day-in and day-out without your hands-on oversight, you have a money making machine that will attract buyers. Identify the three things you absolutely love to do in your business and the three things only you can do. Delegate the rest…
3. Develop a succession plan throughout the company… If there is a plan to move employees up through the ranks or at least, in smaller companies, to assume greater responsibility over time, it should be much easier to transition your company when the time comes.
4. Plan for scalability….”Scalability means the potential buyer sees increased revenues without vastly increased investment of time and money.
Some business owners, when they have gone as far as they want to go with one business, decide to start over with a new one. “Serial entrepreneurship” allows new perspectives and can, if done thoughtfully, be a way to keep yourself fresh.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.