(Editor’s note: This article originally appeared on Bizjournals.com, whose parent company, American City Business Journals, is the largest publisher of metropolitan business newsweeklies in the United States, with 43 business publications across the country.)
Your father started the company after returning from World War II. He worked hard and built a successful enterprise. You inherited the business 30 years ago and continued the tradition, growing it to where it is today.
Now your son or daughter is actively involved in the company, and it is your dream that one day he or she will take over the operation just as you did.
But what if market changes make it far from clear what your business will look like in the future? What if, despite the succession plan you drafted, you are still unsure whether the next generation is ready to lead?
How do you decide what’s right for your business?
At some point you will have to determine the best course for your company because, like any business, it needs to evolve in order to thrive. Essentially, the marketplace presents two options: keep up or cease to exist. For many family businesses, the question of whether they can keep up often brings forth another question: Is it time to bring in outside expertise?
These are all tough questions that create a lot of angst for the business owner. Nonetheless, they must be answered correctly.
Several years ago, our firm was hired to sell a family-owned business. The company had moved to the second generation and was on the verge of passing the firm to the third generation, the grandchildren of the founder. But the organization lost its competitive edge.
With the economy starting to deteriorate, the company’s profitability was in jeopardy. Tough decisions had to be made. Should the owner keep the business in the family, merge with a larger company, or sell all or part of the company to protect the family’s wealth?
The owner decided to sell. He hoped to provide a new opportunity for the family in a new but related industry. We helped him sell the company at the top of the market for a price that far exceeded his expectations. He didn’t abandon the idea of a family business; he just started a new one.
A great outcome
Today, the third generation is leading the family’s new commercial real estate business. By selling the original family business, the owner was able to redeploy the capital from the sale and launch a new business in a less-volatile market that allowed him and his children to learn the new business together. Now, dad goes to work with his son and daughter and has been able to watch them blossom into leaders of the new entity.
Business history is filled with family-owned companies that had to adapt to economic and market pressures to survive. They started as family-owned companies that had to adapt to changes in technology, the economy and customer needs.
The business world does not slow down so that companies can keep up. Instead, it challenges them to evolve and innovate. Family-owned businesses may find this challenge intimidating or invigorating, but they will need to take action.
When you face pivotal questions such as these, it’s important to remember that you don’t have to make these decisions alone. An experienced investment banker can help you evaluate your options and make the decision that is best for you, your family and your employees.
About the Author
David J. Mahmood
Founder and Chairman
Phone: (214) 217-7750