Chloe Quigley, Business Exit Planning Advisor
I love working with family businesses. Being a part of one that my Father has led for 30 years, I’m always eager to learn more practices and lessons to apply. Here are a few of my favorite tips and takeaways from studying, partnering with, and being a part of a family business.
A family business needs to be pursued to live on.
Gino Wickham’s Traction Model explains that the right person for a certain job needs to get it, want it, and have the capacity to do it. The same goes for the next generation of a family business. Are they willing and wanting to put in the effort of the first generation to continue to build, grow, and harvest the business value?
Transparency and clear expectations are key.
Not only that, but they drive value. They give clarity to everyone: Do I want to stay or get out? Is this aligning with my personal goals and skills? Transparency over roles and future growth, as well as what the owner sees as integral skillsets allows everyone to get on the same page. Clear expectations set clear standards. Clear standards enable an objective assessment of each member’s performance.
The age-old adage, “The only thing constant in life is change itself,” absolutely applies.
That’s why it’s important to keep pushing conversations on an annual basis. Kids, grandkids, marriages, the list goes on – life changes are bound to happen. Changes that affect the family always affect the business. We cannot expect that the way one member of the family sees it or hopes it happens will actually happen, even if they do everything in their power to make it that way. There are too many unknowns. We must discuss and plan for the unexpected.
Building a foundation is impactful to future generations.
Sean Hutchinson, founder of Ready for Next Group, says, “You don’t actually own the business; you borrowed it from your grandchildren.” This applies even when the grandchildren aren’t in the business. It applies even when the second generation cashes out or partners with a strategic buyer outside of the family. The third generation lives in the shadow and potential of that first generation’s life’s work. It has built the foundation of their family, taught lessons around work ethic, and set boundaries and expectations around what is possible.
Family businesses are building for future generations.
Transferability in a business builds value. If a business is built to sell to an outsider, it can withstand the changes and trials that are bound to come to those that sit on the inside.
What are those changes and trials that are threatening to come to those that sit on the inside?
These will have some impact on an outsider buyer, but, whether we like it or not, when it comes to family options for an intergenerational transfer, our options are limited.
Even if the goal is to transfer the business to an internal buyer, Opening the door to the outside world at least increases our odds of being less affected by these changes and trials. Going back to the third takeaway (The only thing constant in life is change itself), change is bound to occur.
We can build a business with every intention to keep it in the family, but if needed, the security of having it readily transferable and attractive to an outside buyer increases the value of the business for the family and protects you and your loved ones from potential personal and financial turmoil.
Building a business is hard. Stewarding a family business is challenging. Both are so rewarding. You have options within an intergenerational transfer. You have options in how you build your business for your grandchildren your business was built for your grandchildren. And you don’t have to reinvent the wheel. To talk more about transferring a family business and preparing the second generation, reach out to our Business Exit Planning Team today.
Hutchinson, Sean, “How Do I Beat the Family Transition Odds?” https://www.readyfornextacademy.com/resources/how-do-i-beat-the-family-transition-odds Accessed January 10, 2023
Dean, Tom, Every Family’s Business,
Wickman, Geno, Traction: Get a Grip on Your Business