Family Business Succession Will Become a Major Issue for Thousands of Enterprises and Families in the Near Future..

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A recent study revealed between 80 and 90 percent of US companies are family businesses, and over the course of the next decade, more than 40 percent of those companies’ top executives will retire (Family Business Review). What does this mean? Family business succession will become a major issue for thousands of enterprises and families in the near future. 

“With this massive change on the horizon, it’s safe to assume many of these companies will address succession by selling the family business or transitioning to the next generation. In addition, many family businesses contemplate a sale for myriad other reasons besides succession,” (MiamiHerald.com). Regardless of whether selling is or isn't the right decision, the process can be a source of tremendous stress and family conflict. Accordingly, it is important for families to have trusted advisors involved in the process to help family members understand the implications of a sale and how to make the most of it.

Here are five questions, provided by the MiamiHerald.com, to help your family-owned company navigate the prospect and process of selling. 

Why are you considering a sale?

It’s important to identify the reasons why you want to sell the business, because the motivation for a sale can have a large impact on the best course of action to take. For instance, if there’s not another family member or generation in line to take over the business, then a sale may be the best way to monetize your asset. By contrast, market opportunities may be the driving force, making the urgency for a sale more present. Other criteria could include divorce, death, family members’ seeking alternative career directions, or tax and estate planning considerations.

Is an outright sale the best choice?

Before hanging the “for sale” sign, consider strategic alternatives. In this regard, consult with your accountant, your attorney, or an investment banker. Depending on your goals, there may be a number of other options available to meet your family’s objectives.

For instance, recapitalizing the company could provide cash to the exiting generation (or exiting family members) while allowing the remaining family members to continue in management roles. If liquidity is not an issue, then identifying non-family members for executive management positions can address succession issues while allowing the family to retain ownership (and therefore the cash flow). And of course, if a sale does make sense, then be certain to engage the appropriate professional advisors to ensure you realize the greatest possible value from your family business as early as possible.

Are your decisions driven by emotions or good business sense?

Despite the prevalence of family members that work together, few can avoid the potential divisiveness that money and business dealings can have on their relationships. Whether it’s a case of siblings facing off with each other, cousins in conflict, or parents and children disagreeing, the emotions of a family quarrel can lead to bad decision-making that can have catastrophic economic impact on a family business. I have seen this more than once: As a result of ego clashes or a lack of common sense, much money is left on the table. And once again, one of the best defenses a family can take is to engage the right assistance. A corporate psychologist, family therapist, or professional mediator can often prevent emotions from hijacking a family business’ potential and ensure that equity and “cool heads” prevail.

Emotions can also affect owners’ sense of what a business is worth. While your business is your baby, prospective buyers are often uninterested in the characteristics you consider most significant. Many buyers are extremely disciplined in their approach to value. Look to your advisors to provide an accurate valuation and to negotiate without bias.

Are family members on the same page?

Families sometimes struggle during a sale because some members are risk takers and others are more conservative. One owner (or group of owners) may want to hold out for a premium price while another owner may want to take the first offer. As a seller, the investment bankers representing your company should engage all of the selling parties before going to market to ensure that everyone is on the same page, speaking with one voice and mindful of the same goals. Sometimes it might even be better if one family member buys out the other if that person will be an obstacle in the sale process.

Are you ready for what comes next?

The excitement of a deal and the lure of what looks like a windfall can distract business owners from the reality that, after a transaction, they will no longer own and control their family business. What will you do with your proceeds? What will you do with your time? Many successful small business owners aren’t ready to wind down after selling their companies, and they sorely miss the stimulation of running a company. They still want to be in the game. For other family business owners, a sale can mean their children, siblings, or spouses are left without a job. Still, for others a sale can mean their legacy becomes uncertain.

It’s helpful to contemplate and visualize how you and your entire family will move forward after the sale of your family business