More on Family Business
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More on Family Business
On one of my previous blogs I discussed family business and the importance of not letting an owner’s spouse “run interference” in the management of the company. This is often a major cause of failure of closely held entities.
Another major cause of failure is a founder not being able to let go of day to day management of the business and to permit younger family members to take over. Sometimes this is simply due to the founder having an obsessive personality, and sometimes it is due to the owner lacking confidence in the ability of the younger generation. Regardless of the cause, every founder needs to recognize that someday s/he is going to die; when this eventually happens, the business is either going to be sold by the heirs, usually at a steeply discounted price, or the heirs are going to be running the business, be it competently or incompetently. Death is an exit strategy, albeit not a very efficient one.
Let’s hypothetically say that Tom Founder has three adult children: Sue, Bob and Joe. Joe has no interest in the business and has pursued another avenue in life, but Sue and Bob have both worked in the company on a full time basis for about five years in low and mid-level jobs. Senior management positions are held by outside non owner employees. Tom has some misgivings about the managerial ability of Sue and Bob and has thought of selling the business, but at the same time he would like to see them eventually take over; he has never really given either of them real responsibility, and even though they are both in their late thirties, he still views them as “kids”.
Given this hypothetical scenario, what should Tom do? If he decides that he does not want to sell the business, he is going to have to give Sue and Bob more responsibility and accept the fact that at some point he is going to have to trust them to manage the company. He should consider immediately promoting them to positions of real responsibility albeit with supervision with a mentor assigned. He should also emphasize to non-owner managers that this is a family business and, as regards promotional opportunities, it is run by and for the benefit of the family. Assuming that Sue and Bob apply themselves and have some aptitude, they should be able to manage the business within a relatively short period of time – two to three years. If they cannot manage it at that point, it should be sold.
If you would like to discuss the sale of your business, purchasing a business, or any topic that you have read about in these blogs, please feel free to call Brad Palmer at (908) 931-9300, or by email at email@example.com. We always love hearing from you.