Tips for Inheriting a Business: Navigating the Emotional and Strategic Challenges

Inheriting a business can stir a complex mix of emotions. Amidst the grief of losing someone close, there’s often a sense of overwhelm, coupled with the realization of a significant opportunity. It’s a pivotal moment, demanding sensitive handling and strategic planning to navigate the future of the business you now find yourself at the helm of.

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Understanding the last owner’s will

The last owner’s will is more than a document; it’s a roadmap that illuminates your legal standing and outlines the intended future of the business. Understanding its nuances is crucial for anyone stepping into the role of business inheritor.

Reviewing the will with a legal professional

This is a vital first step. Engage with a lawyer who specializes in estate and business law. They can help interpret complex legal jargon and explain the implications of the will’s content. Ensure you understand every clause, especially those directly affecting the business. Questions like, “What percentage of the business do I own?” or “Are there any conditions attached to my inheritance?” need clear answers.

Additionally, if the previous owner dies without a will, that will also require significant attention from a legal professional. While the previous business owner may not have had a will, if they had a business succession plan, that’s a completely different legal document.

Understanding specific directives

Wills can sometimes contain specific instructions regarding the business operation, such as succession plans, allocated shares to other stakeholders or even instructions on selling or dissolving the business. Analyze these directives closely. If the deceased had a vision for the business’s future or specific wishes about its direction, these can guide your decision-making.

By thoroughly understanding the last owner’s will, you arm yourself with the knowledge required to make informed, strategic decisions about your new venture. This understanding sets the foundation for the many choices and challenges you will navigate as you take the helm of your inherited business.

READ: Study Shows Most Colorado Business Owners Are Not Ready to Sell Their Businesses

Assessing your situation

Assessing your situation before inheriting a business is a multifaceted task, demanding a thorough, honest reflection across various dimensions:

Emotional readiness

Inheriting a business in the wake of a family member’s or close associate’s passing can be emotionally taxing. Acknowledge your feelings of grief, loss or even guilt that may accompany this new responsibility. Consider if you’re emotionally ready to handle the business’s daily demands, decision-making and the legacy expectations attached.

It’s also essential to think about your passion for the business. Are you excited, reluctant or indifferent about this venture? Your emotional investment can significantly influence both your well-being and the business’s success.

Financial stability

Take a deep dive into the business’s finances. This isn’t just about whether the business is profitable. Analyze cash flow statements, balance sheets and income statements. Look at outstanding debts, ongoing expenses, creditor obligations and customer receivables. Evaluate the efficiency of current financial practices — are there areas where costs can be cut without sacrificing quality? Understanding the financial nuances helps in making informed strategic decisions and preparing for potential investments or necessary cutbacks.

READ: How Colorado Businesses Can Benefit from Nontraditional Funding and Private Equity Firms

Vision alignment

Consider how your personal vision aligns with the business. Are you on board with the direction in which the business is heading, or do you see a different path forward? Your vision for the future of the business will significantly influence strategic decisions, employee morale and ultimately, the success of the enterprise.

Risk assessment

Every business comes with its set of risks. Conduct a risk assessment to identify areas of vulnerability — be it financial, operational, legal or market-related. This can help in crafting strategies to mitigate these risks, preparing for unforeseen circumstances and ensuring business continuity.

By thoroughly assessing these areas, you’re not just evaluating the present state of the business; you’re preparing yourself mentally and strategically for the path ahead. This deep understanding of both the business and your relationship to it is crucial for long-term success and personal fulfillment.

Legal and financial considerations

You’ll be navigating a sea of legal changes including ownership transfers and understanding tax implications. A thorough financial audit is indispensable. Know the business’s assets, liabilities, cash flow and other essential financial dimensions. This information is vital for informed decision-making.

By delving deep into these legal and financial considerations, you lay a sturdy foundation for the business’s longevity and success. This preparation helps to navigate the complex landscape of business ownership, ensuring compliance, financial stability and strategic foresight.

Embracing leadership and business culture

Stepping into a leadership role requires more than just authority; it demands respect and trust. This transition often means understanding the existing business culture and considering how to evolve it. Balancing the legacy left behind with innovative approaches is key to modern business success.

The bottom line

Inheriting a business is an emotional journey, laden with responsibilities and opportunities. It calls for resilience, an openness to learning and sometimes, seeking external help. Remember, you’re not just taking over a business; you’re continuing a legacy while crafting your personal and business vision.

 

Jill BrooksJill Brooks is a freelance writer from the East Coast who enjoys discussing how technology impacts the future of work. In her free time, you can find her in the mountains, or on a hunt for the world’s best mac-and-cheese recipe.

Secure the Foundation of the Family Business

Running a successful family business is rarely simple. Problems can arise that hamper business success and disrupt family relationships.

Don’t wait for problems to destroy your family business. Instead, be proactive and plan ahead, positioning your family business for long-lasting success.

Here are 10 key factors to running a successful family business:

Proper Business Planning

Create a plan that defines your family business and what you want to accomplish. Develop a mission statement and values for your company. Be as specific as possible in your plan.

Your business plan should include things like an executive summary, company description, and market analysis. If you need help getting started, check out the business plan tools and resources available from the Small Business Administration. 

Outline Roles and Responsibilities

Define the roles and responsibilities for any family members involved in your business. Be transparent and ensure each family member knows what is expected of them. In addition, ensure everyone knows the consequences of not performing their duties.

Along with roles and responsibilities, determine job titles and compensation for each person. Make sure that it aligns with the work performed.

Effective Communication

Keep the lines of communication open with family members about your business. You can implement this by hosting regular business meetings. Utilizing a family group text or having a designated messaging program (i.e.: Slack, Asana, etc.) can help everyone stay connected and aware of what is happening at all times. It also helps family members separate their personal and business communications, preventing the chance for miscommunication.

Try to focus exclusively on business communications during business hours. If you want to discuss a family matter, bring it up before or after work.

Do not hesitate to temporarily step away from your job if you’re struggling to maintain a healthy work-life balance.

Require Industry Experience

You don’t want a “monkey business led by family members with no experience. To avoid this problem, require a minimum amount of industry experience for any family members who want to join.

If they want to join but lack sufficient experience, encourage them to get training. You can even develop apprenticeship or internship programs that help them build their skill sets and gain hands-on experience. 

Hiring, Firing, and Disciplining Employees

Establish an objective HR policy. If necessary, consult with an HR firm for assistance. This allows you to define terms for hiring, firing, and disciplining employees. It reduces the risk that any external family conflicts could complicate family business ownership.

Do not let family matters influence business decisions. For instance, a family member may want to hire their son or daughter. It may be in the company’s best interest to leave this family member out of the hiring process. This ensures that their son or daughter is fairly evaluated. If this individual is the best candidate for a role, he or she can join the business.

Finances

Put your customers’ interests top of mind. Conduct market research to determine appropriate prices for your company’s products and services. Track your finances and evaluate them regularly.

If you find your company is losing money, address the issue with family members. At this point, you and the rest of your family can work together to get your business’ finances in order.

Maintain a Healthy Work-Life Balance

When family meets business, your work-life balance can deteriorate. Because if a family conflict arises, your company can suffer.

Do not hesitate to temporarily step away from your job if you’re struggling to maintain a healthy work-life balance. If you’re comfortable with it, let your family members know how you’re feeling. This helps open the lines of communication with your family. From here, everyone can ensure you get the help you need. Most importantly, you’ll be able to develop and maintain a healthy work-life balance once again.

If you and your family members learn from one another, your business is well-equipped to thrive.

Setting Up a Succession Planning

Set up a plan if a family member wants to leave the business. This plan creates a smooth transition if a family member gets divorced, retires, or exits your company for any other reason.

A succession plan can encompass onboarding for a new employee who will replace the departing family member. It can also involve letting this family member train their replacement.

Transferring Ownership or Selling the Business

Conduct a business valuation if you intend to transfer ownership or sell your business. The valuation should account for your company’s history, current operations, and growth potential.

A business valuation gives you a good idea about how much your company is worth. Also, the valuation can affect asset distribution among family members.

Feedback

Get third-party feedback about your business. Look at customer reviews to find out how clients feel about your business’ products and services. If you identify improvement areas, work with family members to address them.

Engage in discussions with your family regarding their work performance. Employee feedback is paramount for running a successful business. If you and your family members learn from one another, your business is well-equipped to thrive.

The Bottom Line on Running a Successful Family Business

Research indicates most family-run businesses fail by the second or third generation. However, with proper planning and attention to detail, your family business can succeed starting on day one.

Run your family business in the same way you would any other workplace. With this approach, you can lay the groundwork for a successful family business. You can also keep your company going strong long into the future.

 

Noah RueNoah Rue is a journalist and content writer, fascinated with the intersection between global health, personal wellness, and modern technology. When he isn’t searching out his next great writing opportunity, Noah likes to shut off his devices and head to the mountains to disconnect.

Uncertain times require extra attention to your real estate portfolio

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While there are multiple factors that come into play during the succession planning process, real estate presents a unique set of challenges – and opportunities – that deserve a thoughtful, strategic and creative approach. 

This is especially true with uncertainty surrounding the commercial real estate market (due to the COVID pandemic, shifting economic policies, market volatility and tax considerations, etc.).    

Some of the more important questions and considerations for real estate succession planning include the obvious, and not so obvious, approaches and solutions that will affect the ability of your family to retain and grow their wealth from real estate holdings. 

Are there opportunities to add value? 

You may be able to identify opportunities to add value to your property by taking a 360-degree view of your property.  Doing so will increase your sale price when it’s time for disposition. It might also afford you partnering and financing possibilities you previously didn’t have.  

For example, unused storage or yard space on an industrial property could be converted into a build-to-suit or land sale opportunity.  

It may also provide “chips” to exchange in a government eminent domain claim.  Adding square footage by maximizing zoning entitlements and setbacks may create a new source of income and value.

Simply up-zoning to a more valuable product type might be rewarding. Structural additions to your floor plates may yield additional leasable footage.  Time spent on this now could reduce risk and yield more appeal and value to your family’s real estate holdings going forward. 

What is your property’s track record? 

Taking due time to evaluate both the direction and stability of the historical market for your real estate product type, and a realistic market forecast, could afford you a clear lens to view your succession planning decisions. 

It will also help you to evaluate potential risk and reward, and hidden opportunities as they relate to your personal wealth management and business’s short, medium and long-range facility needs. 

This type of analysis can best be handled for you by an unbiased real estate wealth manager with the tools and experience necessary in evaluating overall market conditions, property (estate) values, competitive loan terms, and your property’s deferred maintenance and capital needs. 

How healthy is your property? 

Now is the time to take an honest and comprehensive look at your property’s infrastructure and physical plant to assess current expenses as they relate to the timing and risk of potentially more severe future repairs and replacements, and how those could affect your estate and family. You might benefit from economies of scale by sharing new CapEx with others or by amortizing them across your portfolio. 

The HVAC, building automation, roof, parking lot, electrical and structural systems will include most of the consequential capital elements of the property. 

Work with an experienced real estate professional and their team to determine the remaining useful life of these critical components, and the financial risks including property devaluation, associated with delay, and benefits of improvements, in whole or in part. 

The longer you delay this assessment, the greater the potential for unexpected budget surprises. More important, these same decisions may greatly increase your return on investment or lack thereof, when it comes to operations, sale or refinancing.  

What are your business needs versus your personal wealth management? 

The delicate balancing of your real estate holdings with the needs of your business facility plans and those of your overall estate planning, sometimes involve opposing objectives. 

Over time, risk tolerance and income needs are only infrequently evaluated as part of personal wealth management and business plans. If a real estate holding exceeds your level of risk tolerance or isn’t fulfilling its original objectives, might it be time to sell, buy more, or otherwise adjust your strategy? 

Reducing your partnership share while leveraging property equity and diversifying your portfolio by rebalancing are ways to adjust to new conditions and needs. 

Try to strike a balance between what percentage of your business’ and family’s wealth portfolio should be dedicated to real estate and prioritize based on the risk and reward and the way your assets fulfill your objectives. 

What is your family’s estate condition? 

Make an honest and personal assessment of your family’s ability to communicate and compromise with one another, and each family members’ individual stations in life. 

Understanding the personal relationships and various levels of trust family members have for one another will help you to better establish financial goals for today and in the future, and what courses of action will be needed to help meet your goals. 

This is a difficult and highly personal first step, but it is critical in crystalizing a plan that will work  

 What are the tough questions?  

Truly understand why real estate does, does not or could occupy a place in your estate portfolio. Speak openly with your estate attorney and/or wealth management advisor regarding the goals, obstacles and sticking points that exist after a death, divorce, or other personal family matters.  

Delaying or short-cutting this evaluation may create significant obstacles and cause undue expense, family conflict and hassles that may be difficult to unwind.  

Now is the time for you to arm yourself with knowledge and a strategy to effectively improve your properties and keep them stabilized, making them as profitable as possible, all the while abiding by your wealth management and succession planning goals. 

Dan Bartell is the President of Bartell and Company Real Estate and Bartell and Company Real Estate Wealth Management, a 35 year old firm that focuses on thoughtful approaches to creating and maintaining value, and whether a property was productive because of its owner or in spite of them. He can be reached at 303-753-9100 or [email protected].