4Thought Blog

While preparing your succession or estate plan, it can be helpful to value your family business both internally and externally.

You might wonder what that means — because you think your company has just one value. In fact, it can have multiple values depending on the valuation standard used. The different results can help you determine whether to keep the family business, pass it on to the next generation or sell it to an outsider.

Two common standards used in valuing a family business are:

Business exit planning advisors Andrea Brady and Denise Hozza were quoted in a recent Lehigh Valley Business article about how not to overpay for a business acquisition. Brady, a Concannon Miller shareholder, is a Certified Exit Planning Advisor and Hozza, a Concannon Miller director, is a Certified Valuation Analyst. Check out their insight and advice below:

Certified Exit Planning Advisor Andrea Brady, a shareholder with Concannon Miller, was quoted in a recent Lehigh Valley Business article about the factors at stake in a successful business sale. Check out her insight and advice below:

Certified Exit Planning Advisor Andy Kahn, a shareholder with Concannon Miller, was quoted in a recent Lehigh Valley Business article about the current state of business mergers and acquisitions (M&A). Check out his insight and advice below:

The business world is in for a major generational shift – a recent survey found 79% of business owners plan to exit their businesses within the next 10 years.

The survey, conducted by the Business Enterprise Institute and the Conway Center for Family Business, found more surprising statistics. Only 30% of family-owned businesses succeed in transitioning their business to the second generation, and only 10% succeed in making it to the third generation!

In many ways, selling to a third party is far easier than selling to a family member – it is usually less emotional, and the focus is entirely on transferring the business.

To sell to a family member, it requires a plan for working with your family, transferring your knowledge and transferring the business. Of course, from our experience, the extra effort is worth it when you are rewarded with seeing your business continue on as a legacy for generations to come.

To accomplish your exit plan, you will need to plan early and communicate openly and often. Both parents and Next Gens must set expectations, and put the plan in writing. If you have an exit planning team, they can help keep you focused on achieving your goals and keep you on track in the process.

When business owners start their businesses, they often create a written business plan to guide them toward success. However, many successful owners don’t mimic that process when they begin to approach the end of their business ownership.

There are three areas in which forgoing planning for the future can create unintended consequences for business owners: money, time, and successors. Consider how a thoughtful planning process (or lack of one) can affect each area.

If you’re considering transferring your business ownership to family, you might be tempted to put your family’s wants over your own goals. While this altruism may be admirable, it can also cause more problems than it solves. Consider the case of Darnell Orie.

Darnell Orie was unsure how to approach his business exit. His son, Hannibal, was the main reason why his company had tripled its revenues and profits over the last 15 years. And even though he wanted to begin winding down his own involvement in the business, he knew that he had to keep Hannibal motivated to grow the company: His retirement depended on Hannibal’s continued success growing the company.

After building a successful business, many business owners decide that they want to transfer their ownership to their children.

Too often, those owners assume that a transfer to children will go smoothly and simply, requiring little more than informing their kids of the date they’ll be taking the reins. Owners who make this assumption commonly realize that without planning, they can harm their businesses, their business exits, and their long-term relationships with their families.

Without proper Exit Planning, ownership transfers to children can produce negative consequences in three areas of your life.

The odds are pretty staggering – only 30% of family-owned businesses succeed in transitioning their business to the second generation.

For those transitioning to a third generation, the odds are even worse – only 10% succeed.

There’s a way to beat the odds – prepare. The best business transition plans happen over many years, both to allow the next generation to learn the family business and move up the leadership ranks and also to best prepare the business financially. 

“A business needs a team of advisors to help them get through the transition,” says Tony Deutsch, CPA, MT, CGMA, a shareholder at Concannon Miller. “When developing a client exit plan, we partner with a business owner’s existing advisors, and/or bring in experienced advisors, such as Compass Point, a strategic partner of Concannon Miller that focuses on family business."

“How the business is transitioned will affect the livelihood of both the current and future owner, as well as the future success of the business as a whole, so it’s important that we start early and get it right.”

Leadership training and developing financial skills are the top two skills you need to succeed in taking over your family business.