Keeping It In the Family
Does your family have an heirloom they’ve passed down through the generations? Maybe you have one of your own. The first dollar your business ever made? A ticket stub from the movie your grandparents saw on their first date? These mementos tell your family history, no matter small or large, they represent a legacy. Your business is a part of that legacy.
I’m sure that on more than one occasion, your business has felt like another member of the family. You probably talk about your business as though it’s taken on a life of its own, you consider it in all your major life decisions and love it as one of your own. If your dream of a successfully designed destination includes passing the legacy of your business to the next generation through an inside sale someday, it’s important to understand what you’ll need to do to make that dream come true.
If you’ve identified viable candidates within your business to transfer ownership to, you will want to make sure that you acquire the necessary resources to complete that transition. This can include the finances to complete the transfer, training for the next generation, and a timeline for your exit from the business.
According to a 2014 study by The Alternative Board, 62% of family businesses are unlikely to remain family owned. Take a moment to think about all the family legacies that were cut off as the result of a lack of planning. This doesn’t mean that an internal transfer is impossible. In fact, a healthy Ownership Conversion Plan helps to ensure that you keep your business in the family.
Over time, entrepreneurial companies can evolve into a second business family. Even if you aren’t related, the bond and partnership developed between you and key team members is significant enough for you to consider them family. In the United States alone, family-owned businesses (FOBs) are responsible for 60% of total U.S. employment and generate 78% of all new jobs. Unfortunately, only 30% of businesses survive to the second generation of leadership. These stats paint a clear picture of the true cost of not having a succession plan. Overcoming the odds is possible, provided you implement a timeline that addresses financial and staffing needs.
Meeting Your Financial & Leadership Needs
A major obstacle in an inside sale is that key employees, family members, and even co-owners lack the assets or financial resources to buy the business outright. It’s also likely that these individuals are not bankable enough to attract funding on their own. So, what do you do? First and foremost, rather than leaving your exit up to chance, start planning today and spend your time wisely. For example, you can arrange a partial buy-in that provides ownership and a share of profits to help fund the sale over the course of a few years. This time is doubly beneficial, as it also gives the second-generation valuable leadership experience, making them more attractive to financial institutions that can help them finalize the purchase of any remaining shares, and helping to complete the transition process. Your business shines as a memento of your lifetime of hard work. Make sure you leave it in pristine condition for the next generation.
Keeping your business in the family is possible, but it should be recognized that inside transfers usually require a substantial investment in development time. You’ve spent years turning your business into an attractive butterfly, growing a legacy that can thrive into the second generation and beyond.
Worried you’re not prepared for the next step? Take the Designed Destinations Quick Quiz to find out!