Family Business Consultants

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According to the results of a recent survey, most family-owned companies need family business consultants, primarily because of “succession planning” or actually the lack of it.

And because the vast percentage of all companies, up and down every street in every town are considered “family owned”, it means that the majority of all companies face the distinct likelihood of losing their life’s work because they have not kept their eye on the ball when it comes to succession planning.

That’s right - succession planning is critical because it is a process that unlocks cash from the business for the departing generation of owners and creates an environment where the next generation can begin taking over.

This process requires a different set of advisors - or at least a new member or two of the company’s advisory team. One of the many things that a good family business consulting team can do is help with those very important plans - creating business management transition and ownership transition simultaneously.  The success of the company for future generations depends upon it.

In companies large and small, succession planning involves aligning the visions of - in most cases the founders of the business although it could be the children or even grandchildren of the founders, stakeholders and gradually handing off decision-making authority to the next generation of managers. 

In order to do this successfully, training and identifying potential leaders is necessary.  That’s just one of the areas that family business consultants can help with.

It is far too easy to let personal opinions about children, grandchildren or other family members get in the way of choosing someone that actually has potential.

Often we see our children as we saw them when they were kids, leaving their roller skates in the driveway, forgetting to lock the car at the Mall, or leaving the forklift out of gear on the loading dock. A neutral family business consulting team can look at factors that people on the “inside” may not be able to see.

100% of the businesses in the survey said that the continued involvement of family members in managing the company was important. After all, the owners of family businesses often have virtually all of their assets tied up directly or indirectly in the business - so they want folks who are committed stewards of their years of hard work.

Even so, 61% said that they had spent little time on succession planning, possibly confusing succession planning with estate planing, something everyone seems to put off too long.  Even CEOs that planned to retire within the next seven years were unsure about “who” would take over after they retired, maybe because the only person they see when they look at their potential successors are the people they were and not the people they have become.  Six months or even a year is not sufficient time for making a successful transition.  Even ten years may not be long enough.

The survey indicated that there are other areas in which a family business consulting team could help, as well.  For example, 13% of owners surveyed said that high profits were not important - remember the higher the “profits” the higher their taxes become. With that ages old mindset business owners often take unwise shortcuts of all kind instead of seeking advice that can help then maximize their profits and minimize their taxes simultaneously.

Family business consultants can help those members who see making a profit as being less than savvy, greedy or undesirable in some way.  Making a profit is what any business-leader should focus on.

When the economy is doing poorly, the idea of hiring a family business consulting team may seem unaffordable. Or they choose the less desirable candidates thinking they can get them on the cheap, maybe because there aren’t as many consulting engagements around as there are when the economy is booming.

In fact it is during recessionary times that the help of the most desirable candidates is most valuable - because they are committed to the long term success of their client’s business and not solely motivated by the paycheck today.  Again, it’s about being neutral.

None of the owners surveyed said that they expected to fire or lay anyone off over the next year. Why would they say that they might fire someone - especially since they are undoubtedly related to them? Yet, there are probably a number of employees in those companies that should, in fact, be replaced or, at the least, counseled concerning productivity.

The business owners know they are not just firing their lazy nephew - they are firing their families too. In family owned companies nothing and no one is neutral and in a vacuum, everyone is connected to everyone else, so it’s easier and a lot less painful to give that nephew less responsibility and hope he won’t cause too much damage than it is to face your brother over the dinner table.

Seeing the big picture is often difficult when you are on the inside, that’s where family business consultants can help, if you’ll let them. They can call for changes you feel compelled to make, because you are smart and you hired them because they are smart. If you are both smart then the decisions made must be followed even if they are painful.

There are many challenges that family business consultants can help owners overcome.  It’s easy to put things off until it’s just too late to make a difference.

Technorati Tags: Family Business Consultants, Family Business Consulting, family business succession planning, family succession planning, Succession planning

Can Family Business Consultation Improve Your Business

Do you know what family business consultation is?

First let me tell you what it’s not: family business consultation is not therapy.

Instead of focusing on the past and all the problems of the family, he focus is on improving the function of your business (which may of course also improve family relationships).

We don’t go deep into your childhood or sibling rivalries. The results of this work are measured by improved business performance in the here and now.

In my work with family businesses, there are four components that I have found to be crucial. These include managing conflict, succession, communication, and roles.

Manage Family Conflict

As part of a family business, you know how quickly conversations can degenerate into conflict. Arguments are more likely in a family business because family members are more comfortable with each other (and therefore less censored) than regular co-workers. Not only can workplace conflict hurt relationships among family members, it can reduce your credibility and professionalism with other employees.

To get better results and enjoyment from your business, you and your family can:

• Recognize the causes of business disagreements.

• Change the course of communication before conflict develops.

• Better understand family member’s views on business issues.

• Assertively state your thoughts and opinions.

• Develop a system for handling disagreements in a private office (not in front of employees).

Do you think you and your business will perform better with lower conflict? I bet so.

Plan for Change in Business Structure & Succession

Your business will eventually change over time. You may consider bringing on junior partners, promoting someone, or creating new titles and responsibilities for people. Family members, business partners, or investors may consider a change in the business structure. Planning for succession is a key component to the success of a family business.

To effectively plan for your business’s succession, you should be able to:

• Openly discuss issues related to succession.

• Learn how people really feel about taking over the business–don’t assume that your son or daughter really wants to or feels comfortable telling you how they truly feel.

• Address potential challenges to a new partnership or business structure up front.

• Anticipate family members’ and employees’ positive and negative reactions to changes.

• Ensure a smooth transition into your new business structure.

Enhance Family Business Communication

Many of the family businesses I have worked with surprised employees (and even me!) by how much they argue. In your family, it may feel normal to have disagreements or even a heated argument. It may blow over and no one is bothered much by it.

Even when this enters the workplace, it may still feel natural to you and you may not even notice

- but other people do. And it often makes them feel uncomfortable. Simple conflicts and communication difficulties can block your business’s ability to thrive. The good news is that these challenges are easy to address. Family business consultants helps to:

• Point out communication problems.

• Coach family members on developing new communication patterns.

• Establish regular times for family business members to have meetings.

• Make meetings more effective and efficient.

Clarify family member business roles

The fourth key point is role clarification. A common problem in many family businesses is that individual roles and responsibilities tend to get blurred. Have you experienced this? You and your family members step on each other’s toes and it isn’t clear who’s in charge of what or whom?

Business roles are different from family roles. This can become confusing – not just for family members, but also for your employees, and even customers. An absence of role boundaries often results in communication difficulties and conflict.

To have a thriving family business you need to:

• Clearly identify and label specific business roles for each family member and employee.

• Ensure that each individual is content with his or her business role.

• Outline job descriptions and responsibilities for each individual.

• Create clear roles for new hires.

• Establish the organization’s hierarchy and determine who reports to whom.

As a family business, you have a unique opportunity to thrive. In my experience, family businesses have more passion, creativity, and loyalty than the average business.

Once you harness these things and address the four components of conflict, succession, communication, and roles, your business will thrive. And on a final note, don’t forget to spend quality non-work-related time with your family members.

Larina Kase, PsyD, MBA, is a business psychologist who helps family businesses across the U.S. to survive and thrive. She was raised in a family business herself and has served as a family therapist.

Dr. Kase is regularly featured in media such as Inc. and Entrepreneur magazines, and The New York Times, and is the author of 6 books. Dr. Kase can be contacted through http://www.pascoaching.com

Article Source: http://EzineArticles.com/?expert=Larina_Kase

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Small Business Sales - Legal Factors to Consider in Selling Or Buying a Small Business
By George Grellas

Introduction

Buying or selling a small business can seem bewildering but the process has a logic to it that sharp entrepreneurs can understand and use to help manage the time, direction, and strategy of their business lawyers and other professionals who help them in the process. This article gives you an overview of what you need to work with your professionals intelligently and effectively in buying or selling a small business.

Three Types of Small Business Sale

A small business can be sold by asset sale, stock sale, or merger, with asset sale being the normal vehicle of choice for many small businesses.

Business Sale — Canned versus Customized

Sometimes the sale of a small business is done via a basically canned process through a broker. In that case, a buyer and seller get a homogenized process that may or may not suit their legal needs. The documentation will be “standard” but contract terms will not be customized for the parties. Such documentation will cover minimum terms but little else.

Better by far in all but very small sales is to use customized deal documents prepared and reviewed by qualified business lawyers. Typically, a seller will get legal and accounting advice on how to structure the sale and will then work with a prospective buyer to get the basics of the deal documented in a term sheet or letter of intent. A term sheet, though not legally binding, provides a useful framework for moving forward. The parties may of course skip right to a formal contract instead.

Business Sale — The Purchase Agreement

The formal contract is a purchase agreement. It normally contains covenants or promises (”I will sell to you and you will buy from me x assets or x stock shares,” etc.), warranties and representations (”as seller, I warrant and represent that I have good title to what I am selling you and that there are no liens on it and no lawsuits against it,” etc.), and conditions to closing (”our deal with close only at such time as x, y, and z conditions are met,” as for example getting a landlord’s consent to a lease assignment).

The Escrow Process, Due Diligence, and Confidentiality Agreements

The contract is signed and an escrow normally established as a mechanism by which to get to a closing where the sale will consummate. Procedurally, such an escrow works much like that set up when a home is sold, except that (for example) instead of waiting for the results for a title search the parties may be waiting for a liquor license approval or some other condition pertaining to a business sale.

Due diligence is a critical part of this process, mostly on the part of the buyer. This is the process by which a buyer inspects the books and records of the business being sold and takes other steps to ensure that what is being sold is authentic and worth the value being paid. Lawyers and accountants typically assist with this process.

Detailed due diligence can be done before or after a formal contract signing or it can be done in stages — limited due diligence prior to signing a term sheet with detailed due diligence during the escrow period. Buyer satisfaction with due diligence is often a condition to closing.

Due diligence is not normally allowed until a buyer has signed a confidentiality agreement.

Common Traps and Pitfalls in the Sale of a Small Business

Many traps and pitfalls can arise during a sale. Sometimes a buyer will claim to want to buy a business while in fact scheming to gain access to key information that will be used competitively against the seller. A confidentiality agreement helps here but this may prove cold comfort to a seller stuck with a lawsuit. Be discerning in this area.

A serious seller risk is to take a carry-back loan with inadequate protections. Proper collateral (UCC and otherwise) is usually key to dealing with this in case of default.

Buyers normally face the greater risks. Unscrupulous sellers can play all sorts of tricks to make a deceptive sale. The nature and range of tricks used, or even mistakes inadvertently made, is vast and varied. This is often the major area of focus by attorneys and CPAs in shaping a seller’s representations and warranties and in handling due diligence.

From a buyer standpoint, the structure of the deal can affect liability risks: in a stock sale, a buyer will inherit the entire corporate history, good and bad, along with the purchase; in an asset sale, a buyer can normally limit the inherited liability risk considerably if not altogether.

Most businesses are sold with a premium placed on good will, consisting generally of the going concern value of having a particular customer base, a recognizable name, and so on. Most buyers then will want a non-compete agreement from the seller or, if the seller won’t give it, at least a non-solicitation agreement relating to existing customers.

Watch out especially for distress sales. Unless a distress sale proceeds by UCC foreclosure, or out of bankruptcy, any buyer of a business overwhelmed with debt can potentially inherit all or part of that debt even if the contract specifies that the buyer is not assuming any liabilities. Given the risks, distress sales are typically radioactive for a buyer.

Common Business Tax Issues

Another major issue is tax. A stock sale will have very different tax consequences from an asset sale, some favoring the seller and others the buyer.

For example, if a seller is a C-corp with low basis assets, any sale of its assets for a substantial sum would likely lead to a serious risk of a double-tax. Let us say corporate seller ABC Corp. sells its business for $10 million via asset sale and has a near-zero basis in its assets. This can happen, for example, where a manufacturing business with fully-depreciated assets is sold. Normally, that sale would constitute a taxable capital gain to the corporation. Given that this is a C-corp, however, the cash in the company would normally be taxed again as a dividend when distributed to shareholders.

In the same scenario, if the ABC Corp. shareholders sold 100% of the stock of the corporation to a buyer, then those shareholders would pay tax on a one-time capital gain and nothing more.

Such tax issues can get complex and should be handled with skilled professional help. A good business lawyer can suggest approaches that can mitigate double-tax problems. The point here is not to attempt to address any given situation but rather to illustrate how tax can seriously affect the outcome depending on how a sale is structured.

By the same token, in an asset sale, the purchase price should be allocated among the assets being sold, and this will result in differing income and sales tax treatment, depending on the nature of the assets being sold and on the nature of the allocation. Such allocations should be done with the help of a qualified lawyer or CPA.

Don’t ignore these tax aspects of a business sale — they can sometimes be the most important part of a deal, and they are almost always important to some significant degree. In more sophisticated deals, tax-free deals are also done via reorganizations.

Estimated Transaction Costs

How about transactional costs? These can literally go all over the board. In a typical small business sale, a buyer should use as a rough estimate of total transaction costs a rule of 2% to 5% of the purchase price. This would be money spent on attorneys, accountants, and other professionals, as well as for escrow fees. Seller costs normally are lower, though they can be significant if broker fees are involved or if the deal is complex. In any case, don’t rely solely on any rule-of-thumb approach — use that for initial planning and then consult with your professionals to refine the estimates.

Work with a Qualified Business Attorney

This highlights some key issues connected with a small business sale but does not address their legal implications or strategies for implementing them (see your lawyer for this). It also does not touch upon important issues such as the need to get consents and approvals (landlord, agency, vendor, and spousal, among others), the use of fairness opinions, opinions of counsel, no-shop agreements, hold-back provisions, earn-out provisions, or issues such as UCC bulk sales compliance, indemnification, joint and several liability, and the like. These deals can have many nuances that only a knowledgeable lawyer will pick up.

For your particular deal, get a good business lawyer. It is not wise to scrimp on expense in complex areas where stakes can be high. Whatever is saved today will be spent many times over trying to dig out of a mess if problems occur. Therefore, budget what is needed and do it right.

Copyright © 2009 George Grellas. Permission is granted to reprint this article in unmodified form in ezines, blogs and other online publications provided that all links are live and that the author resource box below is shown as is set forth below.

About the Author

George Grellas is a Silicon Valley business lawyer specializing in early-stage tech startups. He founded and heads a firm of startup business attorneys that has helped entrepreneurs and their companies in Silicon Valley and throughout the world since 1984 - several thousand in all. The article in its original context may be found at the small business lawyer advice section of the firm’s website at http://www.grellas.com. Also of interest to entrepreneurs will be the author’s Startup Law 101 Series of tutorials for founders and entrepreneurs, which may be found at http://www.grellas.com/faq_business_startup.html.

Disclaimer

This article does not constitute legal advice and should not be relied upon as such. The article sets forth general educational principles only. Consult with a local lawyer in your area about your particular case.

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Family Business Consulting Group’s Drew Mendoza speaking at Banamex on the impact of the economic crisis on family business succession.

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