Welcome to part three of our series on family business. Over the last few weeks we’ve discussed the first two M’s – money and management.
After all your hard work and astute management, you now believe it is time for you to relinquish control of the family business. This brings us to the third (and hardest) M of family business - moving on. Now what?
There are two broad options here to realise the value in the business you have created. These are passing the business on to the next generation, or selling it to an outside party.
We’ll deal with selling the business first.
59% of family businesses surveyed by KPMG indicated that they would sell if the offer was right. The other 41% must have misread the question! But of course, family pride may override economic rationalism.
Making your business ready for sale is a huge topic, and I cannot possibly do it justice here. If you are interested, we have eBook resources that are a must-read for those looking to sell. A quick summary is that you need to make sure the business is attractive, profitable and can run without you. Achieving this readiness takes time, and you need to plan ahead at least a few years before you want out if you want a good result.
Let’s tackle our second option, succession. As with management, we need to consider issues of competence, fairness and strategy. To be honest, of these three, fairness is the least important.
When choosing a successor, you need to think strategically for the business and honestly assess the competence of possible family members who are willing to take on the business. My observation is that having no family member willing to take on a management role is sometimes a good outcome! This then allows the family to appoint competent management to run the business, as an alternative to an outright sale. This keeps the business in the family, but allows it to run at its maximum potential.
This is where having a formal board already established will be a major advantage – as family members will still be able to provide input and guidance via the board without having to contribute on a day-to-day basis.
For many family business owners, letting go is a major decision. If you have been preparing for succession properly, you will have been relinquishing aspects of your role over a number of years, and you won’t have to go cold turkey!
As with selling, having a timeline and proper plan in place is essential. My succession plan is to sell in five years time – but this has been my plan for the last six years! I will get around to it eventually, but I’m having too much fun now!