Looking to buy a family business? Learn more about the emotional and financial components that you need to know before buying.
By Bruce Hakutizwi
Family businesses can be one of the most lucrative investments for entrepreneurs. After all, family businesses account for 64 percent of U.S. gross domestic product and, on average, have a 6.65 percent greater ROI than non-family businesses. Considering they are often well-established, independently operated, and valued by the community, buying a family business seems like a no-brainer.
However, buying a family’s business is more than just a financial or business decision. For them, it’s personal. Follow these recommendations to navigate the unique challenge of buying a family business and create a successful company under your ownership.
Gain the Family’s Trust
In most business sales, the buyer does the majority of the research and vetting while the seller tries to impress. In the event of selling a family business however, that script is likely flipped. When the same group of people have created, grown, and employed a business over the years, they’re going to be overly concerned with new ownership—and rightfully so. The family will feel responsible for their business’s legacy, employees, and customers; ultimately, they’ll need to trust you before they hand it all over.
Getting to know the family and having a genuine interest in the business’s legacy is a great way to build trust. If you’re only in it for the money, they’ll sense it from the moment you walk in the door. Spend time asking important questions about the business they have built, what makes their service so unique, and why they’re selling. After all, understanding the family better will only help you understand the business’s identity more comprehensively. Creating goodwill with the family will be imperative during the transition and in maintaining close relationships with loyal customers.
Learn Your Customers
Many of their current (and, hopefully, your future) customers may patronize the business because they like the family. Removing the family from this equation without the proper transition could mean losing a majority of the pre-existing customer base. One of the best ways to start creating connections is to ask the current owners to start introducing you to loyal customers. Once customers see that the owners respect and trust you, they’ll follow suit. Ask the owners to stay on for the first few weeks of ownership transition so you can get to know your customers better.
As you get to know your customers, begin collecting feedback from them on what they would like to see change, and remain, in the business. While they love the product, they may have always thought prices were too high, for example. By listening to and applying their feedback, you can start developing your own relationship with customers as an owner.
Get an Outsider’s Perspective
While the family can provide invaluable insight into how the business works, they may be too emotionally attached to understand its weaknesses. As with any other business purchase, it’s best to enlist an accountant and legal counsel for advice on the current financial and legal health of the business. Ask the owner for financial records going back at least three years and review them with your accountant for any red flags or ongoing issues. Lastly, ensure that you have a professional inspection of the property completed. The inspection will identify any foreseeable problems and ensure you’re making a sound investment.
Use the professional and customer feedback you get to understand what’s already working and what you can improve upon.
With employees, you should expect loyalty to the ownership. After years of relationship building, the staff is likely concerned with new leadership. To keep the employees’ respect while maintaining a healthy workplace, keep any employees who still want to work at the business; laying off staff will only create a negative attitude among workers. For anyone who chooses to stay, be as transparent as possible about any changes you plan to make. Even better, get feedback from the employees about how things can be improved. Including them in the decision-making process shows that you value their input.
Buying a business isn’t just a professional decision, but a personal one as well. By making sincere connections with the family, their employees, and their customers, you can ensure a smooth transition and ultimately, a financially sound business decision. With the right time and attention, you can transform a family business into your next successful venture. Find family businesses ready for purchasing at BusinessesForSale.com.
Bruce Hakutizwi is the U.S. and International Manager of BusinessesForSale.com, a global online marketplace for buying and selling businesses. With more than 60,000 business listings, it attracts 1.4 million buyers every month. Bruce manages business development, account management, content building, client acquisition and retention in United States of America, Canada, South Africa, and Europe. He frequently writes about entrepreneurship and small business ownership. Connect @BizForSaleUS.