JPAbusiness

After the process of finding a buyer and selling your business, there is a good chance you’ll still need to turn up to work for a period of time.

Conditions of a sales agreement often include requirements for continuation of service for a transitional period. This involves working alongside the new owner for a set period to share information and knowledge of the business.

Businesses – particularly family businesses – often use real estate assets as part of their wealth generation strategy.

This may lead to situations where the business and real estate assets are interdependent, creating complexities when it comes time to exit and establish a fair market valuation.

Ideally, a business will be set up for sale from the moment it begins operating.

After all, you never know when someone may approach you about buying your business, or when unforeseen circumstances may force you to sell.

A previous JPAbusiness client is a good example of why it pays to be prepared. 

If you assume your children will take over your business and only discover they're not interested when it's time for you to exit, chances are it will hurt more than your feelings.

As I explain in the video below, this situation is also likely to negatively impact your business value on exit.

Business owners face unique challenges when they have multiple children and those children have their own expectations as to how the family business should transfer to the next generation.

This process is best started well before parents are looking to retire or children are heavily involved in the business.

Many businesses, particularly small-medium businesses, rely heavily on one or two key individuals for the business to operate.

These individuals are often the business owners and they may be reluctant to delegate control and decision making for a variety of reasons.

Whatever those reasons, the result is centralised decision making, knowledge and experience, which are not easily transferable in a business sale.

Ultimately, of course, that impacts business value – and not in a good way!

Businesses that transition between generations are the exception, not the rule, and represent a declining trend.

Just because you have passion for your business does not mean your children have inherited the same enthusiasm. Never assume!

Communication between family members is crucial to ensure there is agreement on whether the next generation will or will not take over, and these conversations should be regular dinner table events by the time the children are teenagers.

Many businesses start life as 'side projects'.

The business may start out by testing a product or service in the market, while the owner continues to generate a more reliable income through third-party employment.

In the excitement of pursuing the transformation of this passion or great idea into a business, some of the crucial and oft-perceived 'less exciting' aspects of starting a business can be overlooked. These may include:

Family business may bring to mind small, 'mum and dad' firms, but in reality a family business can be as large or small as any other business.

Generally a family business is any enterprise where the founder, their spouse and/or descendants own at least half the equity in the business and play a significant role in the senior management team.

Using these parameters, Ikea, Walmart and News Corp are family businesses!

In his last blog James discussed the 28th Pan Pacific Congress of Real Estate Appraisers, Valuers and Counsellors, which he and I recently attended in Japan.

James presented our research paper, Family Business Dynamics and the Significant Impacts on Business and Related Asset Valuations.