Buying and taking over any business is often a stressful time with a number of things to take into consideration. When you’re planning to buy a family business, though, the stakes are raised.
There are a number of differences between buying a regular business and buying a family business, both in terms of legalities and practicalities, but it’s the potential for problems and disruption which should be given special attention.
Any business needs careful management, and when family loyalties are involved it can become an even more sensitive issue. It’s not just people’s jobs that they’ll be concerned about, but the ongoing existence and the legacy of the company that the family have built – possibly over a number of generations. Many family members will have a sentimental attachment to the business and will naturally be concerned as to your future plans. This is just one of the reasons why hiring a specialist business lawyer with experience in the sale and purchase of family businesses is vital to your success.
6 things to watch out for when buying a family business
One of the main issues is that family loyalties will inevitably come into play, with the likelihood being that many of the family members will be deeply attached to the business and some may see it as more of a family asset than an ongoing business concern. Even if you’re an existing family member who’s looking to take over the business, you may come up against opposition. Some of the more common problems encountered when buying a family business are:
• Opposition from family members if you’re an ‘outsider’ — If you’re a third party looking to buy and take over a family business, you may come up against opposition from family members who believe that either they would’ve been better placed to take it over or even that the business should not have been sold at all. This is a natural reaction as they will be rightly concerned about their jobs and the business which has been in the family for so long. This can be a particular problem if family members will remain involved in the business after the sale.
• Resentment from relatives if taking over ‘from inside’ — If you’re a family member who’s taking over the reins of the business from the current owner — perhaps a father or mother handing the business over to a child — you might experience resentment from a sibling or other family member who feels they have the right to run the business. Families are delicate things, as are businesses, so situations such as this need handling with care.
• Extra input/interference from other family members — Although they may not be involved in the business on any formal level, other family members may feel that they have a right to have a say in the sale of the business and will offer their thoughts and opinions. This is a situation which will need handling carefully and delicately.
• Providing reassurance and clear direction — Do the current owners and employees/family members know your intentions and direction for the business? If your intentions are consistent with the history of the family firm, setting them out clearly and making them known can help enormously in smoothing over relations with and reassuring potentially disgruntled family members.
• Distribution of capital investment — Did the original owner put a large amount of capital into the business? If so, they may wish to realise that investment and withdraw their capital. Will you have to cover that capital with your own investment or will the business survive the pressure on cash if this family capital is withdrawn? These are all questions which will need to be addressed in order to secure the future of the business you’re buying.
• Managing tax liabilities — There are a number of taxes and expenses associated with buying and selling a business, and all parties will be keen to keep these to a minimum. With proper legal advice, working hand-in-hand to produce the right tax strategy with your accountant, you need to look to minimise your tax liabilities and ensure that you’re able to focus on the real task at hand.
Buying and selling family businesses – the need for experienced legal advice
Getting the right legal advice in at an early stage can provide long-term savings too. If you risk disgruntled family members resigning from their jobs and failing to support the new management, or you allow poor morale to affect their productivity, the impact on your bottom line could be huge.
By keeping them reassured and motivated, you can ensure that the ongoing success of your business is secured. Not only that, but a number of issues can easily arise in the logistics and administration of buying a business, including unexpected costs such as tax bills or issues arising as the result of due diligence. A specialist lawyer will be able to prepare you and advise you about these, minimising your expense.
If you’re about to embark on the exciting process of buying a family business, engaging the services of an experienced family business solicitor could be the wisest investment you make.
Our team of dedicated family business lawyers have the experience to know what issues are likely to arise, including many things you’d probably never think of or anticipate.
We can help you to work through these issues and organise the successful purchase of your new business with the aim of ensuring that the whole process is as smooth as possible.
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