Successful Ways to Guide Your Family Business During Hard Times

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Today’s struggling economy has affected many businesses, especially those that are family owned and operated. Demographics, technology and economics are now converging problems, leaving businesses with questions like “where did all the baby boomers go?,” “how can I compete with technology?,” and “how do we battle external challenges?”  

Is there a successful way to guide your family business through tough and changing times? Of course! Here are a couple of steps to follow to help guide your business in the right direction, courtesy of financialpost.com.

Step 1: Ask a few questions – Is your business stable? Figure it out by asking a few question like, “Are we generating or burning through cash?” “Are we losing key internal resources through competition, or market obsolescence eliminating lines of business or key staff departures?” “Is the business value flat, increasing or declining?” “Are there key things the business needs to add to remain stable?” and “Will investments need to be made just to maintain the business?”  

What type of questions do you ask when evaluating your business? 

Step 2: Companies that are currently unstable, should use this step to figure out who really owns the business.

“The stark reality is it is that person’s sole responsibility to stabilize the business. This could involve injecting money into the business or other hard choices. This may not be as simple as looking at the shareholder agreement or list of current shareholders with family-owned companies. Until the business is stable, you can’t look too far into the future generations seeking responsibility to address current challenges,” (FinancialPost.com).

This is at the core of most problems plaguing many western countries: no one wants to own the problem of “crushing debt burdens and social decline,” therefore, no one is truly invested in solving it (FinancialPost.com).

To break this vicious cycle, the actual owners of the business must work to stabilize the business and solve the current challenges. Why is this important? “Passing on an unstable business to the next generation is equivalent to tossing them a grenade after the pin has been pulled,” (FinancialPost.com).

Is there a problem you've been avoiding to correct because it doesn't directly concern your future? Is there an issue someone higher up is refusing to address? 

Step 3: Create a decision-making mechanism by any means. “Once the state of the business is understood and the decision making body is assembled, how does this group make decisions to attain stability? Unanimous agreement? Democratically, one person one vote? Or corporately, one share one vote? Or does one person or camp take control, either with the acquiescence of the others or in a more hostile situation?” (FinancialPost.com).

Don’t allow your company to become paralyzed and end up a victim of circumstance. Hard to specify what movement is needed, but decisions need to be made, and there is no perfect template – figure out what works best for your structure.

How does your business make decisions? Who holds the most weight, or is every one's voted equally weighed? Does your company have a decision-making mechanism already in place?  

Do you think these tips can help your family business? Answer our questions and let us know on our Facebook page, linked HERE.

Experiential Learning & Family Retreats with Continuity Family Business Consulting

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Getting family stakeholders together on a regular basis to share information and experiences is important in building strong families and family businesses.  A strong agenda and expert facilitation helps these meetings become most effective. 

From large inter-generational groups to smaller groups of sibling managers and spouses, retreats offer great ways to get new perspective, and renewed energy, to address the challenges of a new year or a new situation. 

While we are available to facilitate such meetings in a location of our clients’ choice, there is a unique advantage to visiting us in the Boston area.  Continuity has developed specialized programs with a leading experiential learning organization in the Boston area.  We provide challenge courses and cooperative games to teach teamwork, develop trust and improve communication through metaphorical learning.  These full day programs offer family members of all ages, opportunities to participate in a variety of challenging experiences involving ropes courses and games.  It’s a different kind of retreat which aims to be deeply enriching, memorable and a lot of fun.  Please contact us for more information.

For more information, visit ContinuityFBC.com. 

Passing Your Family Business from One Generation to the Next...

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Family businesses are often considered incomparable to entrepreneurship. However, family businesses account for nearly 80% of the enterprises in North America. Less than 60% of them survive to the second generation and only 12% survive to the third generation. 

Many question the reason as to why this often occurs. Prof. Matt Allen, an expert in family business, may have some insight for this question. He highlights that many family businesses are characterized by efforts on the part of ownership to balance financial performance with maintenance of family control and benefits for future generations. Focusing on both family and financial performance can seriously complicate the planning and decision making processes on the business side.

He also notes that if family businesses want to survive and grow into the future, they need to pass on the entrepreneurial mindset and capabilities to create new streams of wealth across generations, not just pass the business on from one generation to the next. This tactic is often referred to as “trans-generational entrepreneurship.” 

It is well known that family businesses focus on maintaining ownership across multiple generations and benefit from long term relationships both inside and outside the business. It is often asked how family businesses transfer the knowledge and entrepreneurial mindset from generation to generation? The answer lies within who holds the top positions. Many top leadership positions in family businesses are often filled with family members who have the leadership and organization to access important knowledge and social resources.

Remember, when leadership transitions are occurring in your family business, the new generation should be mindful and conscious to maintain and build on the networks and knowledge the businesses former leaders.

Contact Continuity Family Business Consulting for more information and guidance on passing the family business from one generation to the next! 

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

Rely on Family Bonds or Opt for a Formal Agreement?

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Earlier this week, The Wall Street Journal published an article titled “5 Monday Must Reads.” One of their "must reads" was about family businesses.

"Family Businesses can operate for generations without formal agreements, licenses or even a legal structure, relying instead on family bonds to hold everything together. That's a big mistake, lawyer Chas Rampenthal writes..." (WSJ.com).

Many lawyers, and other business professionals in the family business industry, agree with Rampenthal, and believe this is a big mistake! Some believe that relying on family traditions and values may work for some, but overall, it does not lead to success for family-owned businesses.

Continuity Family Business Consulting specializes in helping your family business reach an optimal level of success. We  believe the importance of developing and implementing clear policies, no matter how small the company, cannot be overstated. Developing effective agreements and policies are critical, especially when a business transitions from one generation to the next.  

 For more information, visit ContinuityFBC.com.

Family Office Governance

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Many aspects of family office governance are derived from family business governance practices. However, family  offices have some their own special requirements as well.

Single family and multi-family offices are growing rapidly and it has become widely accepted that a  governance structure is a key element for their success.

In a study conducted at the University of Pennsylvania’s Wharton School, it was found that family office governance is key to ensuring adherence to the family’s value system, its overall purpose and successful trans-generational wealth transfer.  Furthermore, to create value, mutual trust between the owners, the board and family office management is critical. 

It’s important for families participating in a family office to  be clear about their goals, expectations and why they want to work together. Just as mission statements and visions are important in family owned businesses, they may need developed for family offices as well. 

Oftentimes, family office managers need assistance with family business members. Continuity Family Business Consulting can work with the family office and the family members to successfully align their visions leading to long term success.

The Bagg Group & Family Business...

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Geoff Bagg never planned to work for his family business. He grew up with the family business ( a Toronto- based employment agency his father started in 1971) surrounding him and promised himself he’d never get involved. However, when Geoff graduated from business school in 1990 in the midst of a horrible recession, his parents convinced him to step in and help out with the company’s struggling temporary staffing division. 

Now more than two decades later, Mr. Bagg is president and chief executive of what’s now known as The Bagg Group and has resisted offers to sell to large multinationals, instead pursuing growth through acquisitions of his own. 

 

After Bagg spent a couple of years working for the business, he refocused the business on the financial services area and expanded to the point where he was able to buy out his parents who retired in 1999. In 2004, the company doubled in size with its acquisition of TOSI Services, another mid-sized Toronto agency, and in November 2011 it snapped up Newmarket, Ont.-based Turn Key Staffing. 

As the company added the new firms and pursued organic growth, it expanded from about 12 employees and $5-million in annual revenue when Mr. Bagg joined, to around 70 workers and revenue expected to top $30-million this year, he says.

The Bagg Group is a mid-sized independent staffing firm in a landscape of hundreds of small shops and a handful of dominant international operations.

Many next generation family members do not want to feel “forced” into taking over the family firm or business, but have an opportunity to do so. Mr. Bagg says remaining family-owned helped foster a more personal culture in his business, which handles full-time placement, temporary staffing and IT consulting.

Dispute Mediation within Family Businesses

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Dispute mediation is the process of assisted negotiation.  We believe, however, that conflict in a family business is not about individual disputes, but is systemic and requires a more comprehensive approach to manage not only disputes, but the issues which connect these disputes. 

Dispute mediation is an integral part of our broader approach to conflict management. At Continuity Family Business Consulting, we have on staff trained, certified, and experienced mediators to facilitate negotiations among family business stakeholders as needed.   Our staff also has the depth of experience and training to address the underlying structural and emotional issues which need to be addressed to support the important continuing relationships.
  

 
In cases where litigation is active or threatened, having trained and certified mediators available may provide the additional benefit of an added degree of confidentiality and legal protection from discovery. It is because of this capability that Continuity can and has worked with clients in extreme conflict and those engaged in active litigation. 

For more information on Dispute Mediation within Family Businesses, visit  ContinuityFBC.com.

Finance and Wealth Advising

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Continuity Family Business Consulting does not engage in asset management, we do not sell insurance, we are not estate planners and we do not provide investment advice.   

We do, however, help families better understand some of the choices and decisions they need to make regarding family wealth.

What is the purpose of the family’s wealth?  How will the family manage potential conflict arising from sibling wealth disparity?  How can families of wealth ensure that succeeding generations avoid lives of entitlement and be productive and motivated to build family wealth?  How should family wealth be managed through succeeding generations?  Should the family consider opening a family office or joining a multiple family office?  Continuity helps families answer these questions, and more, to better prepare them to work with estate planners and asset managers. 

Educating succeeding generations about wealth issues is core to our work with families so they understand financial decision making and are clear about the responsibilities, as well as the benefits, that derive from wealth.

 For more information on Finance and Wealth Advising with Continuity Family Business Consulting, visit ContinuityFBC.com.

Business Strategy with Continuity Family Business Consulting

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Continuity, LLC is a leading family business consulting firm that develops comprehensive strategies for enterprising families to thrive together as owners, managers and family members through succeeding generations. We serve clients across the US and abroad.

As part of our engagements, we are often asked to discuss business strategy with our clients.  Especially when stakeholders disagree with corporate vision and mission or the state of the market, we provide evaluative techniques to help clients achieve consensus. 

By asking the tough questions concerning the marketplace, technology, competition, financial and organizational strength, personal goals and other metrics, we help clients make the right business decisions.

Management and Organizational Development with Continuity Family Business Consulting

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With family dynamics at play, developing both the organizational structure of the business and the individual management skills of key stakeholders can be very complicated.  Having clearly defined policies in place (for example, standards and criteria for a child or in-law entering the family business; performance review and compensation policies for family employees; etc.) will lessen conflict and feelings of unfairness or entitlement among family members and other employees.

Maintaining the entrepreneurial spark, which is the foundation of most successful businesses, is often a challenge with succeeding generations who generally bring more professional management skills to the table.  Developing the management and communication skills of family managers is a key requirement for both business success and managing conflict. Clear organizational charts with appropriate authority, accountability and responsibility – and implementing these ideas effectively – are crucial for family businesses to thrive.

There are ‘Best Practices’ both for general businesses and for family businesses and they are not always the same.  Special considerations may be needed to support and retain family members who may be the most committed and motivated employees possible.

Here at Continuity Family Business Consulting, we have solid grounding in general business best practices and we know where special policies and procedures need to be considered to ensure family business success.  Managing family employees effectively in a family business requires appropriate HR policies, strong accountability and appropriate review and compensation. Leveraging the advantages of family management and control, while avoiding the pitfalls, can be challenging and benefit from competent and experienced independent review and advice.

Continuity has extensive experience and expertise in management and organizational development, coupled with a unique understanding of family systems to create solutions that work for family businesses.

For more information, visit ContinuityFBC.com.