Family Businesses Face Unique Challenges: What Makes Them Different?
Posted on: 01.18.10 by Jess Wells
The Family Business Institute reports that 98% of the business tax returns in America are filed by family-owned or closely-held businesses. This is an astounding number, especially when you consider the millions of businesses that exist in the US..

In matters of cash flow and marketing, a family-owned or closely-held business is the same as any other small business. But family-owned and closely held businesses also they have significant differences, especially when it comes time to talk about retirement, resale, or transitioning the business to the next generation. Here were some key points noted by the Family Business Institute on what makes family-owned businesses different:

1. An overwhelming majority of CEOs in family firms have jobs, not businesses
2. Family businesses face a talent drain as capable people from outside the family assume they have no future in the business
3. Owners tend to micromanage their businesses and suppress healthy conflict because of the ripple-effect through the family
4. Most family businesses are not saleable to outside investors because they're set up as jobs, not businesses

SUCCESSION PLANNING IS KEY
Of the CEOs of family-owned and closely held businesses who expect to retire or semi-retire within five years, a whopping 42% have not chosen a successor.

Older CEOs of family-owned and closely held businesses who are closer to retirement are no better at planning. Of the CEOs 61 or older who are expected to retire within five years, a surprisingly high 55% have not yet chosen a successor.

The Family Business Institute undertook an informal study. It was a surprise to find out that most individuals or companies interested in buying closely held businesses look at dozens or even hundreds of deals before ever closing on one. Most of us who dream of selling our companies would never envision the competition would be so intense and the potential buyers so discriminating.

Among the things that potential purchasers want are:
-A management team which can run the company without the owner being there
-Relatively little competition
-A company with a unique niche and barriers to entry
-Motivated employees who are excited and willing to stay with the company rather than leaving and competing
(buyer's worst nightmare)
-A recurring, predictable stream of revenue
-Customers and suppliers who are loyal to the company, not just the owner
-Assets which can be leveraged (like property or receivables)
-An industry where giants cannot easily squash the business

But the reality is that the more planning that goes into positioning the company for sale, the more you can expect to get for it when you do.

Jess Wells is an award-winning freelance journalist and veteran marketing consultant. For more information about successful small business strategies and tactics or to become a member of the Innovators Forum, please visit: http://www.CiscoInnovators.com
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