The Entrepreneur’s Guide to Inheriting the Family Business

Inheriting a family business can be overwhelming. Even if you knew this day would come, you still don’t feel fully prepared—and business succession is even more complicated if your family members dispute who should be at the helm. 

While no single resource can prepare you to bear the risks and rewards of your family legacy, this guide can help you avoid common family business inheritance issues and ready you for what lies ahead.

TABLE OF CONTENTS

• Steps to Take After Inheriting the Family Business
• 1. Save or Sell?
• 2. Create Your Vision
• 3. Strategize
• 4. Assemble Your Dream Team
• 5. Track Your Progress
• Let Us Advise You After Inheriting a Family Business

Steps to Take After Inheriting the Family Business

Firstly, you should be proud. You’re one of less than 1 in 4 businesses that are taking this step. By naming you as the new business owner, your predecessor demonstrated a vote of confidence in your abilities. The best way to honor that decision is by taking the time to thoroughly understand every aspect of the business. 

If your predecessor did succession planning before exiting the business, you may already know about its history and daily business operations. Go deeper: identify the strengths, weaknesses, and market position. Examine the company’s finances carefully, but also consider future revenue potential. 

Once you know what you’re dealing with, it’s time to call the shots.

1. Save or Sell?

One of the biggest disadvantages of inheriting the family business is deciding whether you should sell the company. The choice is often fraught with memories, mixed emotions, family conflict, or even misplaced guilt. However, it’s important to make the decision on the merits of the business itself rather than your associations with it. 

Here are a few things that may help if you’re having trouble:

• Look at the books. Thoroughly analyze the company’s current financial state: assets, income, debts, partnerships, and investments. If an outsider presented these facts to you looking for an investment, what would you say? 
• Play devil’s advocate. What are the biggest sticking points to keeping the business open? Are there unpaid income taxes, or is there too much competition in the market to stay profitable? How hard is it to overcome these objections?
• Plan your participation. If you’re going to run the business, how many hours will you dedicate to its daily operations? How would this affect your current lifestyle? Would your financial situation change, even in the short term? What problems do you foresee?
• Be realistic. You need a firm grasp of the internal and external factors influencing the business. Evaluate the market dynamics, competition, and industry trends to understand where the business stands and where it could go. How does your perspective aid in making improvements and meeting new opportunities?

You might wish to sell the business for practical reasons. For example, a son may not have the necessary qualifications to run his father’s medical practice or general contracting company. Heirs could find it difficult to continue a business that relied on a decedent’s established connections or specialized knowledge. In these cases, it’s vital to have a legal representative on your side to ensure you get a fair price.

2. Create Your Vision

If you decide to keep the business, you need a clear vision for its future. Determine the purpose of the business – its reason for existence beyond making a profit. What value does the business provide to its customers or community? How does it make a positive impact?  A little introspection can help you create the foundations of your venture:

• Guiding Principles. Reflect on your personal values and aspirations. Consider how these align with the inherited business and what you hope to achieve by leading it into the future.
• Mission Statement. Craft a mission statement that communicates the business’s purpose and values. This statement should encapsulate what the company stands for, its overarching goals, and its commitment to serving customers, employees, and stakeholders.
• Business Plan. Draft a business plan outlining the goals, strategies, and organizational structure of the company. Provide an executive summary of key points such as the business concept, target market, unique selling proposition, financial projections, and funding requirements.
• Operating Agreement. Take care when creating the internal rules and procedures for how the business will operate, such as shareholder/member rights, board/manager structure, decision-making processes, etc. Creating an operating agreement with an attorney now can prevent long legal battles and expensive delays later.

3. Strategize

Time to turn your dream into a reality. Formulate a strategic plan outlining how you will achieve your vision. This plan should address key areas such as growth, innovation, market expansion, and operational efficiency.

• Market Analysis. Analyze the market landscape to understand industry trends, customer preferences, competitive dynamics, and potential growth opportunities. Identify emerging markets, niche segments, or untapped customer needs the business could capitalize on.
• Objectives. Based on your analysis and market insights, establish clear strategic objectives for the business. These objectives should be Specific, Measurable, Achievable, Relevant, and Time-bound (SMART). Prioritize objectives based on their importance and alignment with your long-term vision.
• Action Plan. Create a detailed outline of the steps needed to achieve each strategic objective. Assign responsibilities, set timelines, and allocate resources accordingly. Break down larger objectives into smaller, manageable tasks to make implementation more feasible.

4. Assemble Your Dream Team

The key to a smooth transition is to surround yourself with capable and dedicated people. You need not share a familial relationship with all of them, but it’s a good idea to involve any business-savvy relatives you are considering as successors.

Key topics for your inner circle include:

• Financial Planning. Develop financial projections and budgets to support your strategic plan. Forecast income, expenses, and cash flow to ensure the business remains financially viable. Identify any investment requirements or financing needs to support growth initiatives.
• Risk Management. Assess potential risks or uncertainties that could impact the successful execution of your plan and devise mitigation strategies to minimize their impact.
• Staff. Assess the current talent within the organization and identify any gaps that need to be filled. Invest in training programs to develop existing employees and attract new players to fill critical roles.
• Contingencies. Establish contingency plans to deal with unexpected challenges or disruptions.

Accountants and headhunters can keep you on track, but you might need to consult with a business law attorney to head off future problems. We can advise you on ways to help your family business thrive, but also perform thorough estate planning to ensure your business will be managed according to your wishes in the future.

5. Track Your Progress

When it comes to business, the data makes the difference. You can get an objective view of your progress by following:

• KPIs. Implement tracking systems for your key performance indicators (KPIs). These could include sales revenue, customer acquisition cost, customer retention rate, website traffic, conversion rates, etc. Keep a close eye on the numbers before making decisions.
• Financial Statements. Regularly review financial statements—such as income statements, balance sheets, and cash flow statements—to track revenue, expenses, and profits.
• Sales Metrics. Monitor sales performance by tracking metrics like monthly sales growth, average transaction value, sales conversion rates, and customer acquisition costs.
• Customer Satisfaction. Gather customer feedback through surveys, reviews, and direct interactions to gauge satisfaction levels and identify areas for improvement.
• Website Analytics. Tracking tools like Google Analytics allow you to see your website traffic, user behavior, conversions, and other metrics to measure the effectiveness of your web presence.
• Employee Productivity. Measure employee productivity and engagement through metrics like sales per employee, customer satisfaction ratings, and employee turnover rates.
• Operational Efficiency. Monitor operational data such as production output, inventory turnover, lead times, and fulfillment rates to ensure efficient business operations.
• Benchmarks. Compare your business performance against industry benchmarks and competitors to assess your relative position and identify areas where you can improve.

No matter how strong your plan is, it should be able to turn on a dime if circumstances change. Many companies suffer avoidable losses due to the inability to adapt. For example, adjusting your business practices based on customer feedback fosters goodwill, preserves profits, and allows for minimal operational disruptions.

Let Us Advise You After Inheriting a Family Business

Early planning is beneficial for both business owners and successors. Yolofsky Law offers comprehensive business legal services, helping you make the wisest choices for your business in your lifetime and beyond. Email us at hello@yolofskylaw.com today or schedule a 15-minute call to get started.