Family-owned businesses are a strong part of the fabric comprising the American business landscape. They create an environment full of dynamics, both wonderful and challenging. One area we are advising in more and more lately is business transition from one generation to the next. We have a number of companies we work with where the business is being transferred to the Millennial generation. For the last several years we have heard of Millennials and their place in the workforce. Now, we are seeing examples of businesses, both large and small, where individuals in their mid- to late-30s have controlling stakes in their old line, successful family businesses.
These individuals are bright and eager, and now have the daunting task of leading their family business forward to the next chapter. It is exciting for us to be an integral part of their team of trusted advisors. These young owners lean on us to help solve problems in both financial as well as the operations side of the business.
In one case a father is selling majority ownership to his son. The challenge is the method used to value the business was based primarily on the father’s monthly personal cash flow desires versus the true value of the business. The valuation used was approximately double the true value. That company is now in the process of bringing the valuation in line with reality and restructuring the debt. In addition to constraining working capital for operations and growth, sufficient capital would not have been available to properly reward the efforts of the management group and employees. Difficult conversations are being had; however, ultimately it is critical that fairness prevails - to all those who rely on the business.
Other examples of Millennial owners being consultative include two late-30s owners taking over from one of their fathers. Their management and financial reporting systems lack the quality needed to properly reflect the results of their operations and manage key performance metrics on a regular basis. Our team is working with them to put the appropriate systems in place and train them on how to maintain and use the data. In addition, we identified a number of areas in their tax returns that resulted in their business paying too much in taxes. Lost tax deductions had cost them tens of thousands of dollars annually. We were able to amend their prior tax returns within the statute and recapture those monies. Another set of young owners who broke off from their former employer to start their own engineering firm is relying on us for similar consultative and tax services.
We are working with young owners, helping them become high-level business operators by providing an education in business ownership and management. It's great when we can help that next generation of young and eager new business owners looking to take their businesses to the next level!