If you think about the quintessential small business, you likely see a family-run business – one owned by mom and dad and staffed by children and other family members. While the initial intent of many family business owners may have been to pass the business on to the next generation, there are many times when these family businesses go on the market instead.
A family business on the open market can be a good buy for a business buyer because they are typically run with a lot of drive, passion and care – all of which translates into a strong and successful bottom line.
Problems can arise, however, because the person buying the business isn’t a member of the family.
I’m looking at buying a family business, what problems might I face?
First, you may have a hard time keeping critical staff after the transition because those critical staff may be related to the original owners. The loyalty for those original owners can be hard to replicate, so you as a buyer need to make an effort to get to know each member of the family who works in the business (and plans on staying) and understand what their roles and responsibilities are. Building a good relationship with each family member will help to keep them on your payroll – and hopefully also keep their loyal clientele.
This leads us to our next issue. Many family businesses retain their customer base because that customer base has loyalty and trust for the family. As a new face within the business, you will need the current owners of the business to help you with maintaining that customer loyalty. You can work on customer retention by having the seller introduce you to important regular customers and by possibly keeping the seller on as a consultant for a time after you purchase the business. The key to a successful transition is consistency – which leads us to our last point.
The final problem many buyers run into when purchasing a family business? Making too many changes too fast. The business you are buying is successful because the family that runs it runs it in a specific way – a way that keeps the customer base happy. Every business buyer wants to make their own mark, but massive changes right out of the gate in an already successful business will more than likely end in disaster. Changes are possible, but a buyer needs to take the time to see what parts of the business work.
Buying a family business can pose a special set of challenges, but those challenges are worth it when family-run means a great buy.
Do you have questions about buying family-run businesses? Would you like to know what family businesses are currently on the market? Please feel free to leave questions or comments and we would be happy to help.
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