Your family business is your best vehicle for generating income, preserving wealth and serving the needs of your stakeholders. Yet, sustaining family enterprises for the next generation is a continuous challenge, with the majority not surviving.
It should not come as a surprise — yet it does for many family businesses — to learn that the most significant challenge standing in the way of enterprise longevity is family dissonance. Unhealthy family relationships are potential roadblocks to success that can perpetuate across multiple generations.
To Sell or Not to Sell
In planning the future of your family business, you are presented with two attractive yet incompatible alternatives: either maximise the company’s value and sell it or retain ownership and grow the business to benefit future generations.
In reality, however, selling your company, even at maximised value, is typically a poor financial option. First, taxes will reduce the sales proceeds, often by about one-third. Second, the future returns from reinvesting the remaining proceeds of the sale in fixed income and equity securities will be paltry in comparison to the profits generated from the successful operation of your family company.
The bottom line is unless you receive an opportunity too good to turn down, you must take steps now to ensure that your family business will survive and thrive.
Roadmap to Success
In studying why most family businesses fail, I have identified two principal causes: poor business practices, and problematic family/ownership issues.
Poor business practices include acceptance of excessive risk, outdated strategies, poor management, lack of good business discipline and absent or inadequate succession planning.
Family/ownership reasons include unaligned shareholder objectives, problematic family dynamics, poor governance, unfair reward systems, and inadequate family liquidity. When the combination of problematic family dynamics and ineffective governance leads to poor business decisions, family business sustainability becomes fatally endangered.
To achieve multigenerational longevity in business, family leadership should consider adopting these
Ten Critical Initiatives.
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I’ve just wrapped up recording a future podcast episode with George and look forward to sharing with you his valuable perspectives on family wealth preservation.
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