How To Buy a Business With Family – And Keep Your Sanity! - VR Business Sales Blog

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Tuesday, June 20, 2017

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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 scenario.
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 shared venture.
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 writing.
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 third generation.
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 basis.
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 outside employment.
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 generation.
By Bruce Hakutizwi, USA and International Accounts Manager for, 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.


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