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Family business matters

Tips for buying, managing, selling and sharing the profits of a family business

By Gregory P. Thomas

A family business can be an exciting and challenging venture. Working with loved ones can provide many benefits, such as flexibility, loyalty and a strong sense of identity and purpose. However, family businesses also face unique challenges that can affect their long-term success. Here are a few important factors to consider when buying, managing, selling and sharing the profits of a family business. 

BUYING

Buying a family business can be a complex process, as there are many unique considerations that may not apply to other types of business acquisitions. Here are some important factors to consider:

Understand the history of the business: Family businesses often have a rich history and unique culture that has been passed down through generations. Understanding this history and culture can be important in preserving the legacy of the business.

Analyze the financials: Before buying a family business, it’s important to thoroughly analyze the financials. This includes examining the company’s balance sheet, income statement and cash flow statement, as well as any other financial documents that are relevant.

Consider the family dynamics: Family businesses often involve complex relationships between family members who are both owners and employees. Understanding the family dynamics and any potential conflicts is important in ensuring a smooth transition of ownership.

Evaluate the market: It’s important to understand the market in which the business operates, including competitors, trends and opportunities for growth. This will help you develop a plan for how to grow the business after you acquire it.

Seek professional advice: Buying a family business can be a complicated process, so it’s important to seek the advice of professionals such as lawyers, accountants and business brokers who can help guide you through the process.

Overall, buying a family business can be a rewarding experience, as you have the opportunity to preserve a family legacy and continue to build on its success. However, it’s important to approach the process with careful consideration and planning to ensure a successful transition of ownership.

MANAGING 

Running a family business can be a rewarding experience, but it also presents some unique challenges. Here are some tips for successfully managing a family business:

Establish clear roles and responsibilities: In a family business it’s important to establish clear roles and responsibilities for each family member involved in the business. This helps to avoid confusion and conflict and ensures that everyone is working towards the same goals.

Communicate openly and honestly: Effective communication is key to the success of any business, but it’s especially important in a family business. Make sure to communicate openly and honestly with family members about business decisions and any concerns that arise.

Develop a succession plan: Planning for the future is important in any business, but it’s especially important in a family business. Develop a succession plan that outlines who will take over the business when the current leaders retire or pass away.

Keep business and family separate: It’s important to maintain a clear separation between business and family relationships. This means avoiding conflicts of interest and treating family members who work in the business like any other employee.

Focus on the long-term: In a family business it’s important to focus on the long-term success of the business rather than short-term gains. This means making decisions that are in the best interest of the business, even if they are not always popular with family members.

Seek outside advice: While family members may have expertise in certain areas, it’s important to seek outside advice when needed. This can include hiring consultants or bringing in outside experts to help with specific business challenges.

Overall, running a successful family business requires careful planning, effective communication and a commitment to the long-term success of the business. By following these tips, you can help ensure that your family business thrives for generations to come.

SELLING 

Selling a family business can be a complex and emotional process. Here are some general steps to consider:

Determine the value of the business: Get an accurate and up-to-date valuation of the business to know its fair market value.

Prepare the business for sale: Review financial statements, operations and processes to identify areas for improvement that can make the business more attractive to potential buyers.

Find potential buyers: Identify potential buyers through networking, advertising or using a business broker.

Negotiate a deal: Once a potential buyer expresses interest, negotiate the terms of the sale, including the price, payment terms and any contingencies.

Complete due diligence: The buyer will likely conduct due diligence to verify the information provided by the seller, such as financial statements, contracts and legal issues.

Finalize the sale: Once due diligence is complete, both parties can finalize the sale and transfer ownership.

Plan for the future: Consider how the sale will impact the family, employees and any ongoing business relationships. It is important to plan for the future to ensure a smooth transition and minimize any negative impacts.

It is recommended to seek the help of a professional such as an attorney, accountant or business broker to ensure that the sale is completed legally and smoothly.

PROFIT SHARING

Sharing family business profits fairly can be a challenging task. There are different approaches and methods to ensure that everyone receives a fair share of the profits. Here are some suggestions:

Define roles and responsibilities: Make sure everyone in the family business understands their roles and responsibilities. It is essential to have a clear understanding of who contributes what to the business so that profits can be allocated fairly.

Establish a profit-sharing plan: A profit-sharing plan can be an effective way to ensure that everyone in the family business benefits from the profits. The plan can be based on a percentage of profits or a predetermined amount.

Consider non-financial rewards: Sometimes non-financial rewards can be just as valuable as financial rewards. For example, offering more flexible working hours or opportunities for professional development can be an excellent way to reward family members who contribute to the business.

Be transparent: Transparency is critical when it comes to sharing profits in a family business. Be open about the company’s financial situation and how profits are being distributed.

Use an independent third party: If there are disagreements about how profits should be shared, it may be helpful to bring in an independent third party, such as a mediator or accountant, to help find a fair solution.

Ultimately the key to sharing family business profits fairly is to communicate openly and establish clear expectations and guidelines. By doing so, you can ensure that everyone in the family feels valued and motivated to contribute to the success of the business.

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