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Does Your Business Have Too Many Family Members?

Does Your Business Have Too Many Family Members?

Posted by Jeff Muir on 16 March 2015 | Comments

Perhaps no single topic is more complex than that of family members working within a business.  Everyone has a story about a family business paralyzed by the family dynamics.  While there are some successes, the general feeling among buyers is a fear of businesses with too many family members in key positions, especially: Sales, Customer Service, and Accounting.  Each of these positions deals with the customer and money.  These positions can be difficult to replace at the same time as a working owner.

For a well functioning family, there is a great sense of satisfaction and trust as the business is built and new members of the family are brought in to utilize their skills for the betterment of the enterprise.  If you have known someone their whole life, it is natural to trust them above an outsider.  However, a buyer, surrounded by non-family members may feel awkward in this situation.  The buyer may worry that if family members stay on their loyalty may not transfer to new ownership.

A few examples of family members in spots that will scare away buyers:

  • Family members head the finance, operations, sales and product development functions.  The more of these functions are run by family members the more challenging the situation for a third party buyer.  The idea of replacing so many key positions during a transaction is daunting.
  • A family member has long been the top salesperson in the firm and now in a sales management capacity, actively manages most of the top customer relationships.  Identify a secondary contact for the top customers as part of the development of new salespeople.

It is incumbent upon the business owner to think like a buyer when considering how to position family members in the period leading up to a sale.  The objective buyer doesn’t care what a key employee’s last name is, only what their capability and desire is to help the business succeed. If a family member is not the best long-term candidate for a key position, the business owner needs to replace them and hire stronger talent.  The emphasis on long term implies the key employee will stay with the business well after the transaction.  

Personnel decisions are never easy to execute and making tough decisions about family members is more challenging but extremely important to properly position the business for sale to a third party.