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The family business – the bedrock of the American economy – rarely survives the transition from one generation to another. Possible reasons are many, yet any working list will reflect an underlying problem: dealing with transition issues often leads to a plethora of other problems that many families simply prefer to avoid.
When you think about it, the problems a business must overcome to survive beyond one generation are indeed formidable. A short list might include psychological factors affecting the founder, dealing with children, sibling rivalry, and external forces such as competition.
Let’s add dimension to our picture by considering a specific problem: the “lifecycle phenomena.” The lifecycle of a business is inevitably tied to the lifecycle of its founder. As the founder ages, inevitably a slowdown occurs. The reduction in energy can lead to a gradual unnoticed liquidation of the business. Warning flags may be everywhere if you look for them: loss of market share, flat earnings, increased family salaries and “perks,” rising inventories and receivables, and more depreciation than investment.
Overcoming the Difficulties
Unfortunately, the problems indicated by the warning flags can be difficult to articulate, given the nature of the family business. The founder may operate as much on intuition as on information generated through a formal process. Management controls, accounting systems and the like may give an incomplete picture of the business, thereby magnifying an already delicate problem. Often, a founder may have an intuitive sense that action is needed; he or she only needs a strategy for exploring the various possibilities.
A good way to accomplish this is to ask yourself three questions which will probably lead to many more:
By focusing on how the business will run after the owner’s departure rather than on succession, strategies can be developed in a way that is more comfortable for all parties.
Rich Mino, a financial advisor with Del Mar Financial Partners, Inc., works closely with families and small businesses in the Carmel Valley area. He is passionate about making a difference in his community through financial literacy programs, and focuses on building strong relationships with all of his clients so that he can be a resource to them where needed most. An active member of the Del Mar Kiwanis, Rich supports his Carmel Valley community through local service projects, and by sponsoring the Builders Club and Key Club leadership programs at Carmel Valley Middle and Torrey Pines High Schools. In 2012, he is working to implement a financial literacy educational program to help prepare and educate kids with the challenges that they will face as they begin and graduate from college. He is a registered representative of Securian Financial Services, Inc., Member FINRA/SIPC. Securities dealer and registered investment advisor. Del Mar Financial Partners, Inc. is independently owned and operated. 12526 High Bluff Drive, Suite 280, San Diego, CA 92130. 438300 DOFU 01/2012
The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc.Securities and investment advisory services are offered through Securian Financial Services, membe FINRA/SIPC. Copyright 2010 © Custom Communications Insurance Publishing. Material in this article may not be reprinted without permission. Securian Financial Group, Inc. www.securian.com 400 Robert Street North, St. Paul, MN 55101-2098 ©2010 Securian Financial Group, Inc. All rights reserved. F70288-26 11-2010 DOFU 11-2010 A04917-1110