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The 5 Pros and Cons of Taking Over a Family Business

Updated on January 14th, 2022
Family Business

Next time you’re driving around take notice of the amount of family-run businesses in your neighborhood. And, when you have a couple of extra minutes, stop and think about how about the amount of successful family-owned businesses that there are globally.

Even though I don’t have an exact figure, I can tell you that there’s a lot of them. In fact, it’s estimated that family owned businesses contribute 70-90 percent of the world’s wealth. Additionally, 85 percent of startups worldwide are founded with family money. Family-run businesses also outperform other businesses. In China and Europe there’s a 8 percent difference in return on assets.

Here in the U.S., there are approximately 5.5 million family businesses that contribute 57% of the GDP and employ 63% of the workforce.

Whether you’re looking to purchase an existing family business or take-over for your parents, there’s no denying that a family business can be a profitable business venture that’s also important to the local community.

But, before you make your final decision, make sure that you weigh the pros and cons first.

The Pros of Taking Over a Family Business

1. You’re not starting from scratch.

One morning you wake-up and realize that you really need a bookcase in your living room so that you can place all of your books and knick-knacks in one place, instead of just being scattered across your living room. You’ve seen a million bookshelves in your life and think that it’s easy enough to build yourself.

In reality, constructing a bookcase isn’t all that challenging, but if you’ve never done anything like this before, it can be. For starters, you probably think it’s cheaper than buying a bookcase from Ikea. If you don’t have the tools and equipment that’s not the case. You need a saw, drill, measuring tape, lumber, screws, and stain, at the very least. You also need to have a little carpentry skills. Just aimlessly hammering in nails into wood is never a good idea and pretty much guarantees that you’re bookshelf won’t hold.

In the end, it probably would have just been cheaper and less aggravating to buy a shelf that was already-made.

The same can be said when purchasing an existing business.

If you’re a first time business owner, the hard work has already been done for you. You already have an established brand, as well as a business model. There’s a built-in customer-base and reliable income. There’s existing relationships with the community, vendors, banks, and investors.

In other words, everything you need to start and run a successful business is already in-place for you, as opposed to starting from scratch where you will face hidden costs and have to learn the business along the way.

If you’re taking over you family’s business, there’s an added perk. You grow-up learning and knowing this business, the industry, and it’s customers. You know the business in-and-out, so you can jump right in.

2. The groundwork has been laid, so you can focus on growth.

Since you already have a business-in-place, you can get right to work on growing and improving the existing business because you don’t have to worry about writing a business plan, finding a market, picking a location, and networking. As I just mentioned, that groundwork has already been laid. Now it’s time to make the business ever better for your loyal customers.

3. You’re acquiring people.

Have you wondered why a tech giant like Google would purchase a little-known startup. It’s not because Google loves the product or service. It’s because the Big G wants that talent for itself. In fact, when a business is acquired, the most important asset is the people that come along for the ride.

Think about for a second. The previous owner selected and trained those individuals for a reason. They either had passion or the skills that made the business thrive. The know the business, customers, vendors, and can make the transition run a whole lot smoother.

Why waste your time and money in bringing in a team when their is an exceptional team already in-place?

4. Immediate cash flow.

It takes years for entrepreneurs to start making money. There are even some startup founders that boost about how they had to “starve” at first. As someone who has experienced, it’s definitely humbling and can teach you to become lean. But, why put yourself through that?

An existing business already has cash coming in, so you have an immediate salary and opportunity to put money back into the business. If that’s not enough, and the business has a proven track-record, you’ll have easy access to loans to improve or update the business.

5. You’re carrying on a tradition.

Family-run businesses already have a relationship with the community. This is because they contribute to the local economy, provide jobs, and in-some cases, are a local institution. Can you imagine the Bay Area without businesses like Levi Strauss and Bechtel?

Even if you’re not a part of the family who founded the business, you still get to carry that torch. And, eventually, it’s something that you can pass down.

If you’re taking over the family business, there’s nothing like experience of carrying on your family’s legacy.

The Cons of Taking Over a Family Business

1. You’ll face tension and resistance.

Even if you keep everything the same you’ll most likely face resistance from the community and employees because you’re an outsider only interested in making a profit. Change is always tough to deal with and it’s going to take awhile for people to warm-up to you.

If you’re taking over the family business, be prepared for other family members to intervene. No matter how close your family is, money can bring out the worst in people, so expect to be fighting as family scramble to take their piece of the pie or offer their two-cents.

2. It’s a large investment upfront.

Sure. You already have a business ready-to-go. But, it’s still a huge investment upfront. If you’re not ready for that commitment, or haven’t made sure that it’s sustainable, then you’re taking a pretty big risk.

You also need to take into account fees for solicitors, surveyors, accountants, and upgrades, such as remodeling the office, if it’s been neglected.

3. Their business might have a bad reputation.

Why did the owners really decide to sell the business? Did they have too many outstanding contracts with suppliers, distributors, and other people in the industry? Were they cheating customers? Did they create a poor work culture for employees? Was the inventory, and business in general, just outdated?

Once you take over, you’ll be responsible for handling settling any outstanding contracts, boosting employee morale, repairing your relationship with the community, and making the necessary upgrades to modernize the business.

Sometimes the wounds are too deep and you’ll never be able to fix the reputation that the previous owners, even if it was your parents, left behind.

4. You can’t forge your own identity.

This is especially true if you’re the founder’s son or daughter. Employees, suppliers, and clients won’t necessarily see you as the “boss.” You’ll always be the seen as that kid who was born with the proverbial spoon in your mouth. Ultimately, you won’t get the respect that you deserve.

If you’re purchasing an existing company, it’s also challenging to get the respect that you deserve. Don’t be surprised if clients, employees, and vendors constantly making remarks like, “That’s not how the previous owner did things.”

5. You may not be capable of running the business.

Let’s say that you’re a pizza aficionado. In theory, owning a pizzeria that specializes in brick-oven, gourmet pizzas sounds amazing. But, do you actually know the first thing about making pizza or running a restaurant?

Even if you have the existing business plan and established employees to make the transition a bt easier, you may not have the skills, experience, or desire to properly run the business that you’ve just taken over. These learning curves may prevent you from successful sustaining the business.

What to Keep in Mind When Taking Over an Existing Business

If you’re still have a difficult time measuring the pros and cons of taking over an existing family business, take into the following considerations to make the decision a bit easier to make.

Know exactly what you’re looking for.

Since purchasing a business is an expensive investment that will require a long-term commitment, know exactly which type of business best suits you based on;

  • Location
  • Size
  • Industry
  • Lifestyle

Also be aware of your own strengths and weaknesses.

Research available businesses for sale.

Start with your existing network or businesses you always admired in your community. If nothing pops up, start expanding your search through reputable sites like BizBuySell.

You can also hire a broker to locate and pre-screen any interesting business opportunities.

Perform your due diligence.

You, or your broker, found an amazing business. Make sure that you do your homework first. Find out why the owners are selling or retiring. Are there any loose end, such as payments owed to vendors? Is the inventory outdated? Does the office require major restoration?

Hire a legal team and accountant to answer those questions, along with reviewing the financials to make sure that the business is profitable and having a ballpark estimation of how much it’s worth.

Secure funding.

If everything looks legit, and you really want this business, then it’s time to get your funding through;

  • Seller financing.
  • Angel investors or venture capitalists.
  • Business loan.

Draft the sales agreement.

After you’re selected the business, agreed on the terms, secure financing, all you have to do sign the sales agreement and you’re off and running.

Renzo Costarella

Renzo Costarella

Renzo Costarella gives financial tips and tricks to help retire early. He is an expert at fintech sales and was former sales person at Due. He currently is an account executive at Brex. Previously, he has worked in sales, product, and growth. He graduated from UC Santa Barbara with a Degree in Business/Managerial Economics.

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