How to Manage a Significant Family Business: International Family Business Day

January 24 is International Family Business Day. Family businesses make up over 35% of Fortune 500 companies. According to Businessweek, “About 40% of U.S. family-owned businesses transition into a second-generation business, approximately 13% are passed down successfully to a third generation, while 3% survive to a fourth or beyond.” 

We spoke to CEPAs: Julie Keyes, Dyanne Ross-Hanson, and John Petika, about their decades of experience assisting family businesses during their transition process.

Julie Keyes is the founder and owner of KeyeStrategies, LLC and has been an entrepreneur for the majority of her life. As the founder and operator of several companies, she understands what keeps an owner up at night and the balancing act required to work both ‘in’ and ‘on’ the business.  Having outside perspective and mentoring made all the difference for her, as she spent years growing and improving her companies before selling and becoming a business advisor in 2011.

Dyanne Ross-Hanson is the President and CEO of Exit Planning Strategies, LLC. A firm dedicated to helping business owners navigate the most significant financial transaction of their lives, exiting their business. She collaborates with owners and their advisory team to explore planning options, map realistic exit strategies, and develop an Action Checklist to accomplish the owner’s objectives. So that owners can depart on their terms, to their party of choice, and for the dollars they deserve. 

John Petika joined Petika Wealth Management in 2010. He has served a diverse group of successful individuals, families, and entrepreneurs who are often focused on the demands of their busy lives and need to be able to trust someone with helping them manage and protect their wealth. John is a leader in his community, and he generously volunteers his time to causes that make a difference in the lives of others in the Clearwater area. Additionally, John was named 2011 Man of the Year by the Leukemia and Lymphoma Society and remains in a leadership role at L.L.S.

How long have you been advising family businesses?

Julie: Working with family businesses is easier for me because I lived so many of the issues they face as families and business owners. I was brought up in family businesses on both sides of my family. I can empathize with them, but I also don’t let things slide that other advisers may, simply because they don’t know how to deal with the conflict that can arise. Working in family businesses myself made me unafraid of the arguments and sibling rivalry that can occur when decisions need to be made, along with the way parents sometimes try to take back control and don’t allow their kids to make some mistakes.

Dyanne: I have had the pleasure of working with family businesses since starting Exit Planning Strategies, LLC in 2005. Our mission is to educate owners on exit options, evaluate which best meets their objectives, and implement an intentional plan for ownership transfer. With expertise in internal ownership transition strategies, coupled with statistically higher percentages of family-owned enterprises choosing internal transitions, family businesses naturally comprise a high percentage of my clientele.

John: I love working with family businesses because our team at UBS “The Petika Wealth Management Group” is a family business. My father started the team 30 years ago with another partner, then they brought me along a little over a decade ago, and now my younger brother James joined the group a few years after that. We have a baseball background in our family where our father coached us all the way through High School and it has helped carry our relationship over into business. We understand how to communicate with each other on a daily basis and know that each of us has our quirks.  

We can relate to the family dynamics in the business world with our clients because we understand some of the hurdles and sensitivities they may be going through. One of the best compliments we received from a family business that decided to work with our group was, “We like them because they remind us of our family business and each generation of the family will have someone to talk to that is close in age.” 

How have your family business clients reacted to unsolicited offers from third-party buyers in the past?

Dyanne: While they are flattered, I found that most family business owners often ignore unsolicited third-party offers. Confidentiality is paramount for most business owners I work with, family or non-family. Unless owners’ curiosity of company value and market attractiveness is stronger, they often disregard any such solicitations. Until such time as they determine an “external” transition is their chosen strategy, at least. And upon doing so, I advise owners to then add transaction expertise to their advisory team if not already there. That way they can approach the marketplace with purpose and with professional representation.

How do you manage family dynamics when working on the sale of a family business?

Dyanne: As family dynamics prove a critical ingredient to successfully navigating a transition strategy, professional guidance is a necessary resource on the owner’s Advisory Team. Even when those dynamics appear functional! Developing and accessing a diverse, experienced team of advisors is essential to navigating the complexity of a comprehensive exit strategy. I leave this aspect to those professionals on the team with expertise, as my resource focuses on the financial, tactical aspect of developing an owner’s exit plan. 

John: The children may really love running a business but not the exact business that the older generation started. The next generation should be free to pursue what they are passionate about after the liquidity event whether that is with the current business or not. Having this mindset frees the business owner to focus on what is most important for them and that is getting the maximum value out of their enterprise.  

How do family business successions compare to third-party sales or a sale to private equity groups?

Julie: First, a great deal of thought needs to go into whether there should be a family business succession. So many times, the owners ‘think’ their children or child are interested in taking over, but they’ve never really had the candid conversation. Many times, the owner will say they’ve “mentioned it” over the years to the kids, so in their mind it’s a done deal. If the kids are interested in taking over, the next question is, are they qualified? If you have affirmative answers to those very important questions, you can move forward with a succession plan. A comprehensive plan that involves other leadership is the best; they need to get used to the changes as well. A plan that over time increases the successor’s responsibilities and decreases the main shareholder’s responsibilities and involvement.

A third-party sale or private equity acquisition will not always carry on the legacy that the family business is interested in perpetuating. There may also be aspects of the operation that are tolerable to the family business, but in a third-party sale, you wouldn’t necessarily get away with not fixing those problems. 

Dyanne: Planning and decisions surrounding family business transitions are often grounded more in value-based priorities vs. monetary-based priorities. That is not to say that family business owners do not, nor should not, want to garner monetary gain for their life’s efforts. Rather, when evaluating options, and implementing strategies, family business owners often place a higher priority on attributes surrounding legacy, culture, and loyalty vs. maximizing cash proceeds, which tends to be the focus of third-party sales.

What is an example of a successful family business transition you have managed? How did you help the family through the succession process?

Dyanne: I was referred to a family business, that had been wanting to formulate a written plan for transitioning to second-generation family members. Dad had started the company and grew it, alongside help from his wife, son, and daughter. The whole family was involved in operations. The company had recently been valued at $18M. Mom (63) had retired due to a health scare and was pressuring Dad (65) to do the same. 

Fortunately, Dad had been working his way “out of significance” for several years. The daughter had risen to the position of President through Dad’s mentoring and professional skill development. The son was involved in Finance Department, and all (including the son) agreed he was not slated for leadership. 

While they had a talented advisory team, none had taken the time to lay out sale/gift options – pros, cons, and tax impact, analyzed mom and dad’s Retirement Income Needs, analyzed the need for non-family key employee retention/compensation, reviewed Shareholders Agreement, and confirmed that their Estate Plan reflected their transition objectives. Our work together resulted in documenting objectives, analyzing their feasibility, and then developing an Action Checklist. A checklist that helped guide the owner and Advisory Team in moving through the implementation of their chosen strategy. 

At the conclusion of our planning, the family reflected that while they had done preliminary exploration, my leadership in directing the multi-disciplinary process and holding them accountable to the Action Checklist helped bring their transition plans to fruition. And shared that without that leadership, guidance, and expertise, their plans would have remained in “discussion mode.”  

What is one piece of advice you would offer to a family business owner thinking about their eventual exit plan?

Julie: Seek competent advice from someone who has experience in family business transitions. Begin by setting up Governance. Among the many problems I have seen in family businesses, there is usually no Governance in place, the absence of which is the cause of the issues. 

Dyanne: Start your exit planning early, surround yourself with experienced advisors, and always have a Plan B in mind if things do not turn out as planned. 

John: My advice to offer the owner of any family business is to be fully transparent in everything you do with your family. They should never assume the next generation wants to continue running their business or have to guess what the business is actually worth. They may have different plans and that could affect the exit planning process in transitioning to the buyer. Especially if the buyer thinks the next generation will be around to run the company when the founder makes their exit. Having these transparent conversations with their children opens the dialogue to what is next for the family and their business.

How has your CEPA credential helped you when working with family businesses? 

Julie: Understanding the process and timeline of exit planning has helped me tremendously in my work with family businesses.

Dyanne: My CEPA credential has helped increase my credibility and visibility as an expert in the exit planning field. 

Enhance your Expertise with the Certified Exit Planning Advisor Credential

The Certified Exit Planning Advisor (CEPA) credential is for professional advisors who want to effectively engage more business owners. Through the process of Exit Planning (the Value Acceleration Methodology), owners can build more valuable companies, have stronger personal financial plans, and align their personal goals. Earning CEPA doesn’t change your expertise, it enhances your ability to engage business owners and have value-added conversations around growth and exit.

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