What You Need to Know Before Taking on the Family Business
Taking over a family business brings a great deal of pressure. You know your family is counting on you to keep the business thriving or even pull it out of a slump. You may not even know if taking over your family’s business is what you want to do. The decision can be overwhelming, but with careful planning and a step-by-step move into the process, it may be easier than you think to make the transition.
Even in the very best situation, there are traps and risks involved in taking over a family business. However, communication and due diligence will ultimately play a role in your success. Here are a few key things you can do to help you through the process.
Have a Formal Discussion
You’ve had your loved one patting you on the back for years telling you that “soon this will be all yours.” However, transferring ownership to you needs to be a formal, non-family event. Schedule time for the existing management and ownership to meet at the same time. It’s even wise to include an attorney in this discussion. You’ll need to cover:
When will the specific transition take place?
Who will make monetary decisions (purchasing, employee wages, rates, etc.) going forward?
What contracts are in place that you need to know about, such as those with vendors, leases, management, and staff?
What liens, loans, and other debts does the company have?
Once the transition takes place, will previous family members expect compensation from it? If so, work out the costs now.
These are tough conversations to have, but they have to happen, and should occur before a formal decision is made. Very often, missing or hidden information will not come to light in everyday conversation, and yet it can impact your ability to maintain the business long term. You need information now, even if you think you already know everything.
Be Ready to Learn, Not Take Over
Another important step in the process is being a learner. Let’s say you are taking over your family’s medical practice. You are ready to make big changes to problems you’ve seen. Don’t do it initially. Take a step back and learn. Why is it done? What is the benefit of doing it this way? If you find that your methods are better, work with staff to make changes. It doesn’t matter if you are discussing when the doors open or how papers are filed — you need to learn and understand the systems in place, and then make a commitment to your staff to improve their lives with any changes you make, not complicate them.
This is quite important in situations where your family business has loyal staff who have done things the same way for years. You want to make improvements, but you need to do so in the right manner. Be humble, eager, and personable while making your changes.
Modernize With Care
In many older businesses there is a need to modernize. You may want a website for your company, a social media campaign, and TVs in the waiting room. You may need new equipment or compliant software. For the younger generation, modernizing is often seen as one of the most desirable changes a business can make, but the process can be complex and expensive. Create a list of the changes that are truly necessary. Prioritize them based on the potential impact to the business’s bottom line. Then, work through the changes over time rather than all at once.
Creating a Legally Binding Scenario
Once you make the move to take over the family business, make it legal. Work closely with your family members to change all legal documentation of ownership to you, from business licenses to insurance plans. You need to have the legal right to make key decisions in all aspects.
It’s also valuable to work with an expert in family business structuring and the legalities involved. This is particularly important when there is cash changing hands in the family business ownership change. You’ll need help with determining fair market value, expenses, and much more. Having an attorney by your side that specializes in family business transitions can become invaluable.
Moving your business forward in the future means combining the new with the old. Your family business likely has many loyal customers dedicated to the previous owners, even if they’ve seen you grow up in the company. It’s important to pay respect to those customers and long-serving employees to ensure that mutual desire to move forward is present. Be present and keep learning in the business as long as possible before the move.