Preparing to hand over your business to the next generation? In the best of cases, it takes careful preparation, awareness of family dynamics, and consideration of financial and legal obstacles that can hinder the process.
Most family business owners hold a ‘perfect world’ wish that the business will one day be passed on to the next generation, under whose capable stewardship the business will flourish and continue to provide for the family for generations to come.
It’s quite often the case, however, that the strength of prevailing family dynamics is such that the succession pipe dreams of the family business owner can only be achieved in a significantly modified manner – or in more extreme cases, cannot be achieved at all. If family succession is not achievable, consider other exit strategies. Selling your business should always be an option but do not overlook these three things which if done now, can increase your selling price dramatically.
7 Common Issues for Family Takeovers
Unfortunately, there’s usually a gap that exists between the high-level succession dreams of the existing owner and cold hard practical reality. When we work with business owners on succession plans, our solutions are typically framed around achieving a compromise between the maintenance of harmony within the family on the one hand and commercial objectives and pragmatism on the other.
Based on Accru Harris Orchard’s experience of working with family businesses here’s a brief look at factors that typically arise during succession planning that can have an impact in shaping the exit of a business owner and handing the reins over to the next generation.
- Balancing the interests of the child or children that work within the business against those of the children that do not wish to be involved with the business.
- Balancing the interests of the child/children who will assume ownership of the business with the interests of the business itself. This issue is typically related to the ongoing leadership of the business. It may be the case that the default choice for the CEO position (eg. first-born child) is not the best child for the job
- The presence of family conflict and disaffected family members.
- Blended family considerations.
- Non-business assets of the current owner are held within the same structure that operates the business.
- The current owner does not hold any non-business assets that could be used to provide for those children that do not wish to have an involvement in the business. This issue can result in the business ultimately having equity interests held by children with no involvement in the business.
- The current family business owner holds insufficient assets outside of the business to adequately fund their lifestyle in retirement.
The need to consider all of these family-based factors in succession planning is what makes family businesses unique – but at the same time, potentially quite fragile, going well beyond questions of debits, credits and tax legislation.
In some cases, the best choice for both the owner and the business may be not to hand things over to a family member at all. If you’re thinking of selling your business instead, download our document below. We outline three ways you can increase your sales price, based on our many years’ of experience in selling businesses. It’s good to keep your options open when exiting your business, in case handing the reigns to the next generation doesn’t work out. It’s also good to be informed.