Sunday, August 22, 2010

Issues for a Family Business in a Merger, Acquisition or Generational Transfer

Families in business must begin planning.

In our recent on-line seminar, Robert H. Nice of Robert H. Nice Consulting in Telford, PA and a member of the Partner On-Call Network stated for a Family Business that desires to ‘cash out’ and obtain the highest dollar value, the planning process should begin at least three to five years ahead of time.

Robert stated it is critical that Families in Business understand the subtleties of the “deal” whether acquiring another business or passing the business to the next generation. He stated that in many situations the seller has unrealistic expectations of the value of the business. In defining the trans-generational issues, Robert stated the valuation process must be understood by all family members and will be critical for the transfer and for estate planning purposes. Failure to plan correctly could jeopardize the long-term family legacy as well as tax complications. Robert strongly advocated having all family members involved in the buy / sell / transfer discussions giving all family members a chance “not” to be part of any deal. He stated this also helps determine who of the family may have the drive, desire, knowledge, skills, and abilities to lead the family and continue growing the family legacy. He added, “It may not always be the first born.”

Other internal family issues he defined included determining how Dad will get paid back and will the next generation be willing to sign a bank loan as a guarantee of their commitment. He also stated that any acquisition a family in business makes should be structured with the next generation in mind, in order to reduce the current generation’s estate planning burden. Keeping the next generation in mind does not always occur.


Robert reiterated that families in business must know and understand the financial picture and value of the business in order to make the right business decisions. He also stated that regardless of the size or scope of the business having documented processes and procedures for operational items, customers, accounting, exit strategies, and liquidity policies will enhance the positive transfer whether to family or in an outside sale. Another key point was to begin planning for the transition now, and that means involving the next generation.

What has been your experience in acquisitions and generational transfer of the family business?

Comment

No comments:

Post a Comment