Frequently Asked Questions
Our advisors tackle some of the trickiest questions from family business leaders facing a transition.
Begin by asking: “Dad, what skills do I need to develop or behaviors do I need to demonstrate, on a regular basis, that would increase your confidence in me?” Write these down and develop some objectives, in agreement with your Dad, that would provide the evidence of your skill development. Next, talk to your Dad about being a mentor and beginning to pass on information about how he makes key decisions, details of important strategic relationships and even historical information about risks, successes and failures. You could also ask him to help you to find an external mentor to help to develop leadership skills that may be different from your father’s. In addition, consider talking to your father and other team members about what it would mean to be an effective leader in your company. What are the skills and competencies that are necessary to really inspire those around you to follow your lead? In many cases, parents lack confidence in their children simply because they have never specifically discussed the attributes they are looking for and put in motion a way to develop those attributes.
Our Family Business Advisor Bill Branson recommends:
A strategic plan is a simple document, usually one to two pages, that clearly summarizes the direction the company is going and the key steps to get there. A really good plan will have some kind of over-arching statement of direction – such as a vision statement. It may also include some language about your values as a company. Next, identify your most important priorities for the next 3 to 5 years – what will you need to do to ‘move the needle?’ and achieve your vision for the future? Follow this with 1 or 2 clearly written objectives that meet the SMART criteria (Specific, Measurable, Achievable, Realistic and Time-bound). Finally, assign people to key tasks that will achieve these objectives and measure and monitor on a regular basis.
Our Family Business Advisor Tom Pryor recommends:
First, sit down with a well-trained business coach or financial advisor and talk about your own financial needs for the future. Next, talk about your family relationships, expectations and needs. In many cases, a sale to an outside investor will net more cash from the sale of the company, but may not be in alignment with your family’s wishes or expectations. If you need all of the possible cash you can generate from a sale to fund the next stage of your life, then you may want to discuss this honestly with your children. Once they understand your financial needs, they may be more understanding of your need to sell to an outside buyer. (In many cases, children are not able to raise the same amount of cash or may not be willing to take that level of financial risk). On the other hand, if you don’t require a lot of cash from the company and the children are interested, then you need to decide if this is really in the best interests of the business. Are the kids well suited for the role? Are they skilled leaders who are able to manage the risks and the challenges? Will they sustain the company and help you to leave the legacy you desire? These are all important questions that a song business coach or trained financial advisor can help you to answer.
A buy/sell agreement is a document that clearly spells out what will happen to the business shares/ownership if something happens to a current owner. This may be triggered by a death, disability or some other occurrence that impacts the ability of an owner to perform his or her duties as an owner/officer of the company. When a triggering event occurs, the agreement dictates how the company shares will be valued, how they will be split and/or who will own them. These agreements must be accompanied by some type of funding mechanism, like an insurance policy, that provides the cash for the company or surviving owners to purchase the shares from the absent owner’s estate. This is a vitally important document for any privately held business. Check out the article, Buy/Sell Disagreements in our Resource Library.
Our Family Business Advisor, Pete Butler recommends:
Operating Agreements are legal documents that are required for Limited Liability Companies. However, they can also be useful documents for any business that wishes to gain clarity in regard to many of the factors that can create both conflict and confusion. If you are a member, you can find an Operating Agreement Outline and list of questions in the resource library. You can also find legal document on-line that will give you an idea of what this kind of agreement might contain. However, if you are an LLC, we recommend that you work with an attorney to develop an agreement that meets the needs of your family and your business.
A succession plan is a document that outlines your company’s process for ensuring the long-term success of the business through ‘people development’. Many owners mistakenly believe that a succession plan simply means finding someone to take over as the leader. However, only paying attention to one key position rarely ensures that the company will be in a strong position when transitions occur. A solid succession plan includes these steps: A. Identify the key competencies that this company will need, from its leaders, in the future. B. Determine whether these competencies exist in the current leadership team, not just the owner. C. If not, create a professional development process – which may include hiring talent from outside the organization and/or ensuring a range of training opportunities exist to increase the skills of those in a managerial or leadership position. D. Identify those positions that are critical to the success of the business and make sure that one or more people are being trained – through coaching, mentoring, shadowing, feedback, etc, to fill those positions in the future.
Our Family Business Advisor Beth Adamson recommends:
It is not uncommon for a succession process to fail, even when families believe that they have made their expectations very clear. Sometimes this happens because parents continue to micro-manage even when successors believe they are ready to take the helm. Sometimes this happens because the successor does not really have all of the necessary skills to lead, even if they are very keen. Sometimes this happens because the current leader and the successor are not clear about their roles, responsibilities or expectations. This leads to conflict and is really the last thing that a family wants to experience. We recommend working with a Galliard Family Business Advisor and using the Transitioning Roles and Responsibilities worksheet in the Resource Library to gain more clarity and manage these shifting expectations before they trigger frustrations. In addition, a simple succession plan will spell out the necessary skills needed for future leadership, clarify objectives and encourage the company management team to build a strong bench – rather than just focussing on one key position. In the long run, this is better for the future of the business.
Our Family Business Advisor Dr. Diane McNally recommends:
Many family business owners are surprised by the amount of time that it takes to prepare a business for a successful transition in leadership or ownership. At Galliard, we usually recommend at least 5 years of preparation. It will be important to build a strong bench of talent that is ready and prepared to take over. You may want to read the book, Talent Mindset, by Dr. Stacy Feiner to learn more about how you can build your bench and help your company to remain viable when you are gone.
Our Family Business Advisor, Dr. Stacy Feiner recommends:
Contrary to popular belief, exiting your business is a time to wind up, not down. Embrace that your most important job before transitioning your company to new leaders is to position it for success for another 30 years. Good exit planning take 3- 5 years. It is a process that aligns your financial goals, business goals and personal goals, and clarifies what your success has paved the way for. It is the difference between worrying about the risks or creating your legacy. Get yourself into the right mindset, and prepare your people to share the load in these important ways:
Evolve! Develop the mental fortitude to succeed during this complex juncture. All around the stakes are high, and you will feel the weight of responsibility to get the business in a ready state. Fully support the transition or you may risk getting in your own way. At the same time, envision what your life’s work has pave the way for. Start to plan your own life post-transition. Think about it this way. The last time many of us had the chance to shape our lives was when we were leaving high school. Open your eyes to possibility.
Step up! Just like installing a new ERP system or launching a new product, exiting your business is not business as usual. It requires a capital investment and new resources. You will want to set your successors up for success or you will want the buyer to pay a premium for your company. With a commitment and budget, an uphill battle turns into an rewarding adventure. Execute a formal transition plan, you will likely limp along and dispirit your team. Set up to do this right.
Gain buy in! Be transparent about your vision for the company’s sustainable future after you leave. Transparency of the vision will gain employee confidence as well as mitigate the risk of employees bailing out. Often the future leader will have a bigger vision, more capital and an updated strategy that will stimulate growth and new opportunity in ways that benefit employees. Remember the climate has changed dramatically, and employees are not so easily alarmed by the idea of the owner selling. Just as often, they welcome the change.
Build your bench! The people you surround yourself with in your organization make or break your success. You entrust your employees with critical information and expect them to execute your company mission – they are your greatest competitive advantage, or the biggest drag. When employees are engaged, they will drive your organization to be agile, innovative, profitable, smart—successful. Your success or failure depends upon the people you allow into your company. People drive the numbers when they are engaged with you on a shared mission. Give them clear objectives, the tools to accomplish the objectives, a feeling of being valued and a belief that they can grow.
Business owners should give themselves 3-5 year to create an environment where productive employee increase profitability, and a positive culture unifies people around a shared mission. Building bench strength is the secret lever for increasing the value of your company. Rather than worry, turn your attention to getting into the mindset and building bench strength to ensure that you transition strong.”
Some financial advisors will prepare a ‘down and dirty’ valuation – a simple calculation of value based upon financial factors. While this does not include market factors, it can certainly give an owner a general idea of what the business is worth and sometimes advisors will share ideas for increasing the value. Depending upon the size of your business, this could cost anywhere between $2000 and $5000.
The Galliard Family Business Advisor Institute has many members who are keen to help you with your planning. In many cases our advisors can coordinate a range of services, including legal, financial, insurance and business development services. Our advisors take the time to listen to your needs, understand your situation and only introduce specialists when the timing is right. This can save hundreds, if not thousands of dollars. Many Galliard Family Business Advisors are generalists who share a love of business and a desire to see these companies both survive and thrive. Check out the member directory to find someone whose skills and background might meet your needs and give them a call. You may wish to interview several people before you decide on a ‘match’.
Our Family Business Advisor Steve Brilling recommends:
You will need to connect with a Financial Advisor who is really interested in understanding your lifestyle, needs and expectations. You also want to make sure that they understand your family business dynamics – how long you want to work, who might take over in the business and whether it is a better option to sell or pass on to the next generation. Be wary of financial advisors who are merely interested in selling you investment products. You need someone who will work in partnership with you to really understand your personal vision for the future as well as being able to calculate and create your financial plan.
Our Family Business Advisor Keven Prather recommends:
I view achieving financial security for business owners as a pre-requisite for entertaining a successful transition or exit from their business. The answer to the question “I don’t know if I have enough money and who can help me figure this out?” is often a time dependent question. For a business owner “who do I talk to?” question can be answered with another question to a prospective financial advisor; “What portion of your client base is made up of business owners and what do you do for them?”. If it appears that business owners don’t make up greater than 60% of that advisor’s practice and they predominately just manage investments, it is likely not a good fit. Look for advisors who practice is predominately focused on working with privately held and family businesses. A good indicator is look to what they write about in the media, what their LinkedIn profile indicates, what organizations they belong and what conferences they attend. More importantly ask them what their process is for working with clients. The process should be business focused.
Business owners need to understand what their business is worth in a sale to a third party buyer and what the business is worth as an ongoing income producing enterprise. How an exit or transition is constructed also has tax consequences to the owner that has to be incorporated into their planning. Without evaluating the tax consequences of a transaction structure. The post-business involvement part of life needs to be envisioned accurately to maintain current and future lifestyle financially. The business owner financial planning process should begin very early as possible to adequately have enough time to plan.
When a gap exists between what the owner needs and what the business is worth, advisors should help ownership focus on building, protecting and maximizing business value. A business owner financial plan should take into account tax management, debt management, adequate insurance planning, retirement planning, wealth management structure, and estate planning integrated together with their business transition plan. The business owners who build diverse sources of wealth outside their businesses often have easier times leaving their businesses. If the planning process begins early in the owners lifecycle of the business, ownership financial goals are much more easily obtained. The key issue is owner’s need time to help build, protect and maximize value of their company so when a liquidity event does occur the net after tax amount will meet their needs long-term.
Right this way…
Our Family Business Advisor Beth Adamson recommends:
Our Family Business Advisor Deborah Ranier recommends:
- The business needs to run without you well before you leave. That requires having well documented processes and well trained staff members.
- They key to maximizing business value is to look at your business through the eyes of a buyer. Understand the 8 drivers of business value and start to make the structural, operational and financial changes that will drive business value. There is a specific process than can take months to years to complete so advanced planning and professional guidance is crucial to a positive outcome.
- There are eight drivers that impact the value of your business. Complete the Value Builder Assessment from one of our PBCA coaches to determine your current score and identify the biggest opportunities to increase your business value across these eight areas.
- – Create a detailed Strategic Business Plan with a Business Coach to uncover and unlock hidden or overlooked value
– Use a Business Coach working with the Management Team to implement the tactical elements of the Plan with completion milestones/deadlines for each department (Marketing / Sales…)
– Use the Business Coach to create the Business Broker RFP and to review resulting presentations leading to Broker selection
- By taking a step back and evaluating each area of your business to determine what areas to focus on in order to make the business more valuable. What areas will a potential buyer find as valuable? If you were buying the business, what would you find valuable?
- Potential buyer will evaluate three areas:
1) How much cash your business generates?
2) What’s the level of risk in your business – i.e. how certain is the return on my investment?
3) What’s the growth potential of your business and is this estimate believable?
Our Family Business Advisor Jennifer Fry recommends: