PASSING THE FAMILY BUSINESS TO THE NEXT GENERATION - IS IT YOUR BEST CHOICE?

Written by Dave Kauppi


As Penn State professor William Rothwell ominously points out inrepparttar forward to Exit Right: A Guided Tour of Succession Planning for Families in Business Together, more than 40% ofrepparttar 104040 people who runrepparttar 104041 closely held operations that comprise 80% ofrepparttar 104042 North American economy will retire by 2007. It makes me wonder, what is going to happen to all of those businesses? Although it is a noble gesture, passing a business down torepparttar 104043 next generation is more often than not, unsuccessful. In fact, statistics show that only one-third of all family businesses are successfully transferred torepparttar 104044 next generation and only 13% are transferred ontorepparttar 104045 third generation. Many family business consultants sayrepparttar 104046 primary reason for this low survival rate isrepparttar 104047 failure to develop and effectively plan forrepparttar 104048 transfer of ownership and management ofrepparttar 104049 closely held family business. I agree that this is a factor, but in my dealing with family businesses I find that there are some more fundamental reasons. The first is thatrepparttar 104050 next generation has a lot different life style thanrepparttar 104051 business founder and entrepreneur. They do not sharerepparttar 104052 same drive and commitment that dad needed to buildrepparttar 104053 business from scratch. They go torepparttar 104054 good schools, get a taste ofrepparttar 104055 good life and generally do not sharerepparttar 104056 passion ofrepparttar 104057 business founder. I recently was involved in selling a produce distributor. I found that most ofrepparttar 104058 firms were in their second or third generation. I asked a third generation owner why this particular industry had such success with keepingrepparttar 104059 business inrepparttar 104060 family. He said, “When you are up and onrepparttar 104061 docks at 3 am and work 12 hour days, you don’t haverepparttar 104062 time to spendrepparttar 104063 money.” The next generation may have a grand scheme to turnrepparttar 104064 traditional printing business into a media empire or a liquor business into an entertainment enterprise. A few years backrepparttar 104065 second generation of a well known Chicago area computer leasing and IT Services Firm tried to turn it into an Internet Venture Firm with disastrous results. Before you just assume that your torch will be carried byrepparttar 104066 next generation, make sure thatrepparttar 104067 next generation even wants to runrepparttar 104068 business. Imaginerepparttar 104069 loss in value that would have occurred ifrepparttar 104070 real estate billionaire fromrepparttar 104071 western suburbs had turned his empire over to his son who simply wanted to produce plays.

SELLING YOUR BUSINESS FOR THE BEST PRICE

Written by Dave Kauppi


If you are considering selling your business this article will help you evaluate your company as a strategic acquirer might. From that perspective it pays to focus on ten critical areas of value creation. The better your performance in these areas,repparttar greaterrepparttar 104039 selling price of your business. Below is our list of STRATEGIC VALUE DRIVERS:

1.CUSTOMER DIVERSITY – If too much business is concentrated in too few of your customers, it is a negative inrepparttar 104040 acquisition market. If none of your customers accounts for more than 5% of total sales, that is a real plus. If you find yourself with a customer concentration issue, start focusing on a program to diversify.

2.MANAGEMENT DEPTH –An acquirer will look atrepparttar 104041 quality ofrepparttar 104042 management staff and employees as a major determinant in acquisition price. You should makerepparttar 104043 move of assigning your successor a year in advance of your scheduled departure date. If you have a strong management team in place, you should try to implement employment contracts, non-competes, and some form of phantom stock or equity participation plan to keep these stars involved throughrepparttar 104044 transition.

3.CONTRACTUALLY RECURRING REVENUE – All revenue dollars are not created equal. Revenue dollars from a contract for annual maintenance, annual licensing fees, a recurring retainer fee, technology license, etc. are much more powerful value drivers than projected sales revenue, time and materials revenue, or other non-recurring revenue streams.

4.PROPRIETARY PRODUCTS/TECHNOLOGY – This isrepparttar 104045 area whererepparttar 104046 valuation rules do not necessarily apply. If strategic acquirers believe that a new technology can be acquired and integrated with their superior distribution channel, they may value your company on a post acquisition performance basis. The marketplace rewards effective innovation and yawns at “me too” commodity type products or services. Continue to look for ways to innovate in all facets of your business. If you create a technology advantage in your company, think what that could mean to a much larger company.

5.PENETRATION OF BARRIERS TO ENTRY –In its simplest form, a large restaurant chain buys a small family owned restaurant to acquire a grand fathered liquor license. Owning hard to get permits, zoning, licenses, or regulatory approvals can be worth a great deal torepparttar 104047 right buyer. The government market is extremely difficult to penetrate. If your product or service applies and you can break throughrepparttar 104048 barriers, you become a more attractive acquisition candidate.

6.EFFECTIVE USE OF PROFESSIONALS – Reviewed or audited financials by a reputable CPA firm cast a positive halo on your business while atrepparttar 104049 same time reducerepparttar 104050 buyer’s perception of risk. A good outside attorney reducesrepparttar 104051 risk even more. A strong professional team is a great asset in growing your business and in helping you obtain maximum value when you exit.

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