It Doesn't Need To Be That Way

“Shirt sleeves to shirt sleeves in three generations.”

- American saying

“The father buys, the son builds, the grandchild sells, and his son begs.”

- Scottish proverb

“Clogs to clogs.”

- A Lancashire proverb from the 1600s

“Rice patty to rice patty.”

- Asian proverb

 “Father, founder of the company, son rich, and grandson poor.”

- Mexican saying (translated)

Across generations and across cultures, the sentiment is the same: family businesses and family wealth don’t make it into the third and fourth generations.  Statistics on family business only reinforce the adages: only 12% of family businesses will continue operating into the third generation and only 3% of family businesses will continue into the fourth generation.  It doesn’t need to be that way.

            Every business faces challenges to successful, long term operations.  For the countless strengths and opportunities giving family businesses a competitive advantage, business families face unique challenges in setting up the business and the family to be successful for generations to come.  There is no magic checklist or fill-in-the blank formula, but there are things business families can do:

·      All family members participate in defining the core values for the family and the business

·      Create an environment of open, clear, and direct communication

·      Develop clear policies and business norms for family members

·      Clearly define the roles and responsibilities in the business

·      Have a plan, in writing, for the transition of the business to the next generation

·      Establish a fair and equitable exit strategy for those not interested in the business

·      Help each family member internalize the vision for the family and the business

            Involving all family members in addressing these issues can help improve the odds of success for future generations and nurturing the family legacy. 

            It’s not too late to get started. 

SKM Associates

advising and supporting Families in Business as they build their legacy

235 Yoder Road • Harleysville, PA 19438 • 215-256-5997

Family Business: Merge, Sell, or Transition

Robert H. Nice of Robert H. Nice Consulting in Telford, PA and a member of the Partner On-Call Network just posted a White Paper identifying the broad issues a Family Business needs to consider when buying, selling, or transitioning the family business. Many of these issues are not clearly understood, adequately considered, or even discussed by all family stakeholders.

Robert states it is estimated within the next ten years over a trillion dollars in the United States will be transferred to the next generation. This statement invites many questions for families in business beginning with what must be considered if we are buying or selling the business and if that sale will be to family members. There are some basic facts that all family members should consider if they are looking to grow their business via acquisitions or if they are planning a sale. The family and stakeholders must consider whether the business will be passed or sold to the next generation, or is the family simply looking to harvest the business. In another little known fact, Nice states there are generally 12 Buyers for every profitable business for sale, yet only 20% of businesses ever sell. If the family is acquiring a business are members of the buying family willing to sign personal guarantees.

We have an On-Line Educational Seminar on these issues and more scheduled with Nice for August 17^th at 11:00 AM EST.

For the Family that desires to pass the business to the next generation the issues to be considered not only include the financial concerns Robert discusses, but the interpersonal relationships within the family. Is there a level of trust between family members? Are family members able to openly and honestly discuss all the issues? Is the next generation ready, willing, and able to take over the business? Is Dad really ready to let go?

Further reflection on the issues Robert raises for the family transitioning the business to the next generation, it becomes more evident to me that the planning process must begin now and families must work at educating the next generation long before the transition is at the doorstep. This means instilling values, stewardship, business knowledge, creativity, humility, respect, …I think this list could go on and on.

So how do we help and support this education process?

Let me know your thoughts, and how your family is educating the next generation.