Time for change? Family-owned business execs must recognize signs they need to exit

Every business owner eventually comes to the point when it’s time to step aside and allow new leadership to take over. Leaders of family-owned businesses are no exception.

One of the best indicators that the head of a family-owned business needs a change often comes when that person realizes he or she no longer has the drive or passion for the work.

“You look for whether you’re starting to get tired of doing the work that you’re doing,” said Joani Gill, a certified exit planner with Exits LLC in Grand Rapids, a company that specializes in working with family-owned businesses. “If you don’t feel the energy and the enthusiasm for the business anymore, it’s time to look at exiting.”

If the head of a company has not been putting everything he or she has into it, the business could begin to languish, Gill said. That eventually could cause problems if the business lacks a clear next-generation successor to run the company and the family decides to sell, for whatever reason.

“In order to sell the business or transition it, you have to have good cash flow,” Gill said. “If you’re getting tired of running the business, then you’re no longer building that consistent growth year in and year out. That’s what buyers look for, so if you’re getting tired and you know that five years from now you’re really going to be tired, then it’s time to start working on the process.”

Gill’s perspective applies to all businesses, and echoes common themes among professionals who work with family-owned companies.

Flat or declining sales or slower growth compared to prior years also serve as indicators that the business may need new leadership, according to experts. They say leadership needs to weigh whether they’re up to making the personal commitment and the financial investment required to keep the company up to date with changes in their industry.

As industries evolve, there also may come a point when the skills that made the present leader successful in running the business don’t fit with the future needs for the company, necessitating a change. A good leader should have the ability to recognize when a company has grown to the point where its requires a different leadership style, experts said.

According to Rich Noreen, a partner at BDO USA LLC in Grand Rapids, family-owned business executives need to ask themselves a key question: “Is the style that got them where they are still appropriate for the company?”

In some instances, the head of a family-owned business may still have the energy and passion to keep going, but the next generation of leadership is able and ready to take over. That’s where the leader of the family-owned business needs to consider planning for a transition and the timing for it to occur, or possibly risk losing that next-generation leader who doesn’t want to wait too long to move up to the top position.

“You don’t want that to linger too long. It can cause hard feelings and cause those folks to start to look elsewhere,” said Nicholas Reister, a partner at Smith Haughey Rice & Roegge PC in Grand Rapids.

In other situations in which a family-owned business lacks a next-generation leader to take over, selling could be the best option for the family.

In those instances, leaders need to make sure they are surrounded by a strong management team and maintain growth so they can attract potential buyers, professionals say.

“You should always keep yourself as an attractive candidate to buy,” Noreen said.


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