Family Business Succession – Assessing the Financial Needs

In the family business succession process, two of the most important areas to address are the financial needs of the departing owners and the financial needs of the incoming owner(s). Many businesses are asset rich, but cash poor. The owners are dependent on the income regularly generated by the business to provide for their daily needs. Now, a business that was once called upon to provide an income for one family, must do so for two or more families. If the business is to be transferred to a successor family member it will be necessary for both sides to look at the economic realities and adjust accordingly.It will be vital to understand the true value of the business. If the outgoing owner requires a sale of the business for more than it is worth, it can destroy the opportunity of the incoming owners. They will be crushed by the ongoing financial obligations. By the same token, after years of building the business, the outgoing owners should not be forced into a pauper’s life just to subsidize the next generation. If the needs of the departing owners and the needs of the incoming owners cannot be synergized, it may mean that the succession cannot occur as hoped and a sale to a third-party buyer should be considered.These are hard questions that must be addressed in a forthright fashion if you want to succeed in transitioning the ownership of a family business to the next generation. Peter Drucker once said: "Erroneous assumptions can be disastrous." Make the effort to get the facts in order as you proceed in the family business succession process.