The family business challenge

Posted: September 18, 2013 in Family Businesses
Tags: , ,

Most family businesses are corporations but they are more institutions than businesses. The owners expect loyalty to the organization (ie them) and there appears to be a higher calling than the profit motive.

I have been around them most of my business career. They may have some or all of the following characteristics:

  1. Very tight ownership control – 100% owned by 1-3 family members
  2. Poor internal controls – no budgets or forecasts
  3. Longevity – many are second generation or longer
  4. Their market is local so this does explain #3.
  5. Not well capitalized.
  6. The business net worth of the shareholders isn’t available.
  7. The sole source of remuneration is a salary.
  8. There isn’t much if any consideration to succession planning.

All of the above might appear to be pejorative on my part. It isn’t a criticism but a statement of fact – after over 30 years experience in this sector.  Like any business, the family business faces daily challenges. There is an extra strategic challenge that the family business faces. How does the business enable wealth transfer from generation-to-generation yet ensure the replenishment of the family ownership ranks?

The above isn’t easy. This unique challenge is facing the baby boomers right now. The boomer who is an employee may be able to retire with a pension, convert their RRSP to a RIF or have outside sources of (investment) income to supplement their retirement years. Maybe!

The boomer(s) who own businesses have their retirement wealth invested in their business. Their business is their RRSP.  That is obvious. What is the solution?

I feel that one of the greatest challenges facing the boomer business owner (BBO) over the next 10-15 years is – devising their exit strategy. This is one of the most difficult decisions the BBO will ever make.

Have you given any though to your BBO exit strategy?

 

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