How To Transition Your Family Business Successfully

70% of family businesses fail to transition their ownership from one generation to the next. When owners of a family business are ready to retire and have the option to pass it down to their children, many factors keep them from doing so. What then?

In this WOWBIZ Inside Scoop video, Jim Zipurski of Corporate Finance Associates discusses the psychological and financial challenges of passing on a family business as well as how to use outside financing and lots of counseling to make the transition a win-win scenario.

Reasons why transition may fail:

  • Communication failure
  • Limited access to capitol
  • Family dysfunction

Equity recapitalization can be the answer

In some situations, money isn’t available for senior owners to retire or isn’t accessible for the younger generation to buy them out. “Equity recapitalization” is a way for companies to acquire the businesses while keeping the family involved in a meaningful way.

Acquisition challenges

Many factors can sidetrack the equity recapitalization strategy. Buyers want certain characteristics in businesses; sometimes, a family-owned business isn’t financially ready for acquisition. Private equity groups statistically have a higher rate of success building and developing businesses than owners do when it comes to handing it down to second and third generations. Not every business owner can utilize equity recapitalization as a catalyst for a successful transition, but when they can, it works nicely – especially when coordinated through CFA!

 

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