Author: Elizabeth DiPietro

No business is conflict-free, and family-owned businesses may be one of the best examples of that. Is it possible to plan for transitions in a family business without explosive dynamics, reducing the stress all around while keeping family relationships intact?

Many of us read about the public vying for control in 2014 of Market Basket, a New England grocery chain. The company lost $583 million in sales and was targeted by employee and customer protests while two cousins, both grandsons of the founder — one a board member, the other chief executive — publicly vied for control of the business. And just watch television shows Bloodline or Succession — family-owned businesses make for great drama!

You can reduce that drama by effecting successful leadership transitions, including articulation and alignment of core family and business values and determination of the future business strategy.  For those fortunate enough to have next-generation family members with the requisite talent who are interested in assuming leadership of the business and willing to put in the effort, leadership development is one of the key steps.

A leadership development plan for a family business is essential. It acknowledges each family team member’s current set of core competencies and aptitudes and those that will be required in the years ahead. It creates a path to acquire the skills necessary for executive positions through training, development and independent assessment — and removes favoritism and biases from the transition equation.

Of course, the plan must be continually reviewed or modified to reflect changing circumstances in the family or the business, such as through death, divorce or divestiture of a major operating division.

For those fortunate enough to have next-generation family members with the requisite talent who are interested in assuming leadership of the business and willing to put in the effort, leadership development is one of the key steps.

Next up: how Next-Gens can achieve leadership competencies.

 

Based on the article ‘Succession:  A No Drama Approach” originally published in Family Business Magazine.

Question:

What are alternative ways to secure capital to grow your company where ownership in your family business is not part of the equation?  

Answer:

A sale leaseback is often the answer if a substantial portion of your underlying business assets are represented by unencumbered real estate. It’s possible to obtain a very high percentage of the asset value in cash for a long-term monthly payments. The same is available for business equipment although shorter in duration.  Off-balance sheet project financing arrangements with third parties are also well suited for standalone projects or expansions such as new restaurants, factories or even the launch of a new product. They provide growth capital without directly impacting your balance sheet or becoming a shareholder in the core business.

 

Question:

How much time should be allotted for the process of financing for my business?  

Answer:

A financing will invariably take longer than anticipated – often six months – and a year or longer for equity.  You’ll have to identify the right structure for the targeted financing source and prepare the necessary materials. Not all financial institutions will meet your needs as they have different specializations and requirements with respect to the capital they extend.

Question:

What are some ways to finance your company’s growth other than a commercial loan or an equity investment? 

Answer:

Capital for your business can often be secured through the sale of short term receivables for 70% to 80% of face value.   Another option is securing financing from your vendors. This approach may be a less expensive alternative to borrowing from a financial institution and creates positive cash flow to the extent negotiated terms allow for payment after the purchased inventory is sold.

 

Question:

How can you adapt your financing plan in ways that enable you to access required capital without compromising your long-term goals?

Answer:

Strategic partners are often the answer. They are well informed and have a long term investment horizon. They provide capital in any number of situations offering more flexible terms than financial institutions.   These partners are other businesses that have strategic reasons to be involved in your company, industry or market and likely  share your long term view.  State and local government agencies also provide development programs for manufacturing infrastructure projects and other long-lived initiatives such as local business expansion in the form of credit enhancements, tax credits/benefits for job creation as well as outright grants.