John A. Davis says most families are not ready to sell the traditional business, but there is a good reason to do so. The key is to make the right family arrangements and the right wealth planning.
by John A. Davis and Jonathan Pellegrin
On important occasions, we gather for family portraits. If you had to take a picture of your family business today, what would it show?
Family businesses represent the aspirations, achievements and struggles of one or more generations of a family. We would see all these things in the portrait of the family business. The portrait of the company would also represent more than 90% of the assets of the owners.
“If this transition is not well managed, the family has a higher risk of losing wealth through poor investment decisions and excessive consumption”
Few families usually sell their businesses and those who sell them reluctantly, taking into account everything the sale represents. We understand the emotional attachment of a family to their business. But with the pace of industry development and other factors, more families should consider this change.
If you are considering selling your traditional business, we congratulate you. Let’s hope that you (and all your stakeholders) will see the fruits of generations of hard work and sacrifice. In addition, selling your family business offers great opportunities. You can update and reconfigure your ownership group with the right owners to create your next chapter on wealth creation (and social value creation) projects.
Selling a family business can be a heartbreaking decision
but it is an option that families should follow. © iStock.com / PeopleImages
But it is important to understand that if this transition is not well managed, the family loses wealth due to poor investment decisions and overconsumption. From today, before your sale and your liquidity, you need to take the attitudes of families who live as successful and enterprising families:
They know the life cycle of their industry and are making progress.
They understand the cash needs of the family now and in the future as well as their true strengths and weaknesses.
They want to know about the differences between families with operational business and families after liquidity management of portfolio assets.
They are ready to face the shared challenges of family families after liquidation, which can threaten the unity of the family and homeowners.
Enterprising families create value through liquidity transitions
The attitudes of entrepreneurial families that develop after inherited transitions seem to lead to the following six key activities that will drive and drive their success.
1. Planning You develop a strategic plan for the family – usually with the help of trusted advisors – to clarify their goals and values and to clarify how they achieve these goals. Of course, this strategic plan needs a lot of time, often a year or two to develop.
2nd retraining. As part of the family’s strategic plan, proceeds from a sale of the business are reallocated to assets (usually more diversified assets) that match the talents, aspirations, and needs of the family. In the short term, families put their belongings in relatively safe vehicles, breathe and evaluate their interests, their unity and their willingness to take risks. In the longer term, they could set up or buy another operating company, while holding part or all of their assets in other types of investments.
3. Governance You develop governance mechanisms (discussion forums and decision-making forums, rules, guidelines and agreements) to help the family make decisions and inform family members, gather them and, hopefully, invest them. in the family.
4. Talent development. They develop family skills to lead or direct the new business or other family activities. Obviously, with the sale of the family business, the family’s talent needed for the future will not be clear for some time. As the family enters new activities, it better understands which family talents are needed.
4. More planning. Even if the family redistributes assets rapidly and collectively into new business activities, family members will have greater financial independence after a sale. This requires individuals to develop their own life plans and financial plans in the context of greater liquid assets. Many resources are available to support financial planning and asset management. Make the family’s strategic plan before looking for investment advisers. And before you do that, take the time to review the livelihoods of your family members, the family’s collective goals, and the role of wealth in their support. So look for the right consultants to help you at the right price.
5. Develop a new awareness of the context. Value-creating families take this opportunity to reflect on how greater wealth or liquid wealth impacts the family’s lifestyle, behavior and ethics. These are all serious ingredients to support an enterprising family.
6. Unite the family. They work very hard to develop the family unit and commitment to the new family business. We can not stress enough how important it is to emphasize the unity of the family on the eve of the sale of your heritage, to cultivate and support the new creators of family wealth for future generations. The family was the foundation of your success and it will always be so.
Remember that companies come and go, but business families can last for generations. Maintaining family dynamics and growing family wealth are the true success factors from generation to generation. Are you ready for your portrait?