All in the Family: Six Strategies for Successful Family Business Planning

The seventh annual EisnerAmper New Jersey Business Summit was held on October 24, 2017.  The summit featured a session called “All in the Family: Six Strategies for Successful Family Business Planning.”  The panel discussed transition planning for closely held businesses but it included a fresh perspective on the psychological aspects of transitioning multi-generational closely held/family owned businesses.

Lisë Stewart, director of the EisnerAmper Center for Family Business Excellence, led the discussion.  Lise has a unique insight into entrepreneurs and their businesses with her degree in organizational psychology and certifications in coaching and innovation engineering.  She has many years of experience working with business owners helping them build their businesses and guiding them through transitions.  A transition can range from transferring ownership to the next generation through and including selling the business. 

What makes a family business unique is that it is so much more than just a business, it is an extension of the family. The founders have invested their lives into building a strong business and it is often difficult to distinguish between the business and the family. 

Matt Kerzner, a senior manager with the EisnerAmper Center for Family Business Excellence, brought additional insight from having been part of a family business. Matt’s family operated a chain of pharmacies that were ultimately sold to a third party. He was able to share his own family’s experience with a transition as well as the knowledge he has gained from working with clients that are family owned businesses.

The goal of any family business is to build a strong business for the future and to protect the financial interests of the family. But focusing too much on building a business results in all of the family’s assets being tied up in the business. According to market research, the average business owner only has $40,000 of investments outside of their business. This may be acceptable -- until the business owner needs to transition the business and is trying to convert the business into a liquid asset. 

Onofrio Cirianni, a partner with EisnerAmper Wealth Management & Corporate Benefits, works closely with clients to plan for transitions and continues to provide guidance as they move on to other life goals. Onofrio believes when there is a potential sale of a business it is important not to focus too much on the purchase price. The business owner should think about what it will be like post transition from both a financial and social perspective. When considering a transition, the owner will need to get emotionally ready. 

Onofrio also raised the issues of tax planning and the protection of assets. Considerations include tax treatment for capital gains vs. ordinary income and estate and gift taxes. It is also important to project future income needs based on expected standards of living to make sure a sale will provide enough assets for a comfortable future.

Based on their years of experience, the EisnerAmper team has identified six strategies to facilitate a beneficial transition.

1. Understand the stage of your business. Entrepreneurial is the first stage of a business when the founder is still making all of the decisions. As the business matures it reaches the Consolidation or Durability stage. The company has overcome some difficulties and may have even acquired some competitors. If a business can continue to improve it will eventually reach the Legacy Building stage. At this point the company has a strong bench and is well positioned for anything.
2. Define your vision and plan. Fewer than 10% of business have a written plan. Start your plan with the end in mind (how will you exit or transition the business). Consider what you will need from the business and when you will need it. Consider the needs of the business and of your family. Plan for value by considering the worth of the business today and determine how much you want the business to be worth in the future. If you are planning to sell, imagine a future three to five years from now and consider your exit strategy.
3. Prepare the business for growth. What differentiates your business from the market? How will you continue to compete in the market? How do you protect your brand and/or proprietary products? What innovations can you make to increase market share?
4. Equip key people for success. Define success and practical performance measures for your team members. Look for individuals with the talents that you need instead of trying to fit family members into specific roles. Apply the same rules to all of the employees, both family and non-family
5. Build your bench. Identify core competencies that will improve your business or that will need to be replaced when you transition the company. Become a mentor or coach and not just the boss. Consider hiring from the outside to increase the talent pool. A well organized business with a strong bench will be significantly more valuable than a business that is still heavily dependent on the founder.
6.  Consider an advisory board. An advisory board is one of the most effective improvements a company can make. Populate the board with subject matter experts who can add value to the business. Meet regularly and focus on high level issues. The board should be cost effective, informative and innovative. 

The discussion panel brought up several real life examples which made the presentation both interesting and informative. Questions from the audience added to the dialogue and helped to bring out some additional insights. The most important take away from the session was that while you cannot control the marketplace, you can implement the six strategies to always be ready for a transition.

For more content from EisnerAmper’s New Jersey Closely-Held Business Summit, please see:

Innovate, Disrupt or Get Out of the Way–Panel Discussion at NJ Business

Summit   Workplace of the Future