Buying a business and running
it as a family-owned enterprise remains an entrepreneurial dream for a great
many people. So much so that America relies on family businesses to generate 60
percent of its current employment.
It’s easy to see the appeal:
the thought of choosing your own direction while working alongside relatives to
generate an income that will support you all may seem like the perfect
But while there are many
attractive aspects to buying a business with family members, there are extra
obstacles and considerations to address if you are to make a success of your
Who makes the decisions? How
much of a stake does each family member control? And how do you allocate
positions and responsibilities?
These are just a few of the
questions facing every entrepreneur who buys a business with
their nearest and dearest. Here are some effective ways of making a success of
a family venture without creating or exacerbating familial tensions.
Establish business relationships
When your work colleagues are
also your relatives, it is crucial that you set clear boundaries and understand
each other’s roles from day one. Separating business and family life is perhaps
the most important ingredient when it comes to realizing the happy and
productive enterprise that you have envisioned.
Define ownership interests
It is unlikely that upon acquiring
your family business, each family member will invest the same amount of
capital. This may cause friction between family members over who feels entitled
to control various aspects of day-to-day operations.
Codify from day one the
rights and roles of every family member; manage their expectations over what their
financial requirements entitle them to.
Put everything in writing
In a family business, it can
seem tempting to rely on verbal agreements – especially when relationships are
strong. But it is critical to put all major decisions and agreements into
You can never predict when
difficulties or disagreements may arise. Without any paperwork to settle a
dispute, matters can quickly escalate and damage both your business and family.
These documents are best prepared by an attorney who will help ensure the
documents are legally binding.
Seek outside advice and conflict resolution
Within a family dynamic, it
can be more difficult to resolve disagreements pragmatically: conflicting
loyalties will tend to override rational decision-making, even among the
coolest business minds.
In such situations, it is
preferable to call on an external, impartial party to help resolve any disputes
before they cause lasting animosities.
Many consultancy firms specialize
in conflict resolution and have a sound understanding of the particular issues
that family enterprises face. An independent and disinterested voice will often
be all that is required to smooth over divisions.
Set realistic expectations
Some people value the trust
and autonomy that working in a family firm engenders. Others, within the
family, hope to create a lasting dynasty, and an asset that can be passed down
through the generations and provide security for children and grandchildren.
Yet in the real world, things
rarely work out so smoothly.
It is a hard truth to face,
but 9 out of every 10 family-owned businesses do not continue into the
There are several reasons for
this. Yet the most common explanation is perhaps also the most obvious: each
family member has their own unique expectations and goals.
One of the most difficult
challenges to navigate, this must nevertheless be addressed on an ongoing
Establish plans for buyouts and unexpected exits
Unless you have developed
contingency plans to cope with the financial costs of a partner leaving the
business, you may find that the remaining stake is sold to an outside investor.
This fundamentally alters the internal dynamic of your family-run enterprise.
It is therefore worth putting together a
buy-sell – or buyout – agreement to avoid confusion and protect everyone’s
interests in the event that any family members wish to relinquish their stake
in the business.
Such an agreement stipulates who can – or
cannot – buy an outgoing partner or shareholder's share of the business; what
events, such as death, disability, retirement or a voluntary exit, will trigger
a buyout; the price paid for a partner or shareholder's equity; and so on.
Consider the differences between establishing and
inheriting an enterprise
A family-run enterprise can
provide a very different environment for future generations when compared to
It may be a smart move to
require that sons and daughters gain outside experience before they seek a
position within your family firm. This will allow them to acquire life
experience and a realistic understanding of commerce, away from the support
structure – and additional challenges – of the family-run environment.
Learn to let go
And finally, when the time
comes to pass the torch to the following generation, be prepared to relinquish
control of the business entirely. Attempting to maintain some form of control
from the sidelines may only stifle the creativity and enthusiasm of the next
By Bruce Hakutizwi,
USA and International Accounts Manager for BusinessesForSale.com, the world’s
largest online marketplace for buying and selling small and medium size
businesses. Bruce has over 7
years’ experience working within the US business transfer marketplace
connecting buyers and sellers.