Mercer Capital had the opportunity to sponsor and attend Family Business Magazine’s 2024 Transitions Spring Conference in sunny Tampa, Florida. As always, the team at Family Business Magazine did a great job organizing and hosting the gathering of a few hundred representatives from nearly 90 successful enterprising families. A feature of the conference is the opportunity for families to share their experiences in candid conversations, and we were happy to have been a part of those conversations and see some familiar faces.

The theme of this year’s conference was change and transition in your family business.

Change is inevitable in any business, and the hardest thing for any family business to do is to stand still. The conference speakers and sessions struck a good balance of how to effectively facilitate organizational change while maintaining your family’s values and identity.  While our family business should embrace change and grow as markets and consumers evolve, it is important to remember your family story and where you came to maintain a long-term perspective for your family enterprise. Family businesses need to think in generations, not quarters. Below, we discuss three transitional forces facing you and your family business.

Change in Ownership

Travis Harms and I led a breakout session titled “Are You READY to Increase the Value of Your Family Business?” In the session, we highlighted the levers that drive business value and provided a framework for thinking like an investor and how to be READY to sell. Travis had an apt analogy: selling a home. You may not intend to sell your home, but having your home updated, clean, and in working order is not just attractive to a buyer. You get the privilege to live in it, too!

The same is true for your family business. A family business READY to sell may generate more cash flow and be more attractive to a potential buyer, but they are also businesses that are more fun to work in. So even if you have no intention of selling your business (which most attendees and family businesses do not), you will miss out on significant potential benefits and overall satisfaction in your family business if you aren’t in a READY to sell mindset. The founder of our firm, Chris Mercer, developed this framework years ago, and you can read more about it in Chris’s book Unlocking Private Company Wealth.

Change in Leadership

What happens when a star player gets injured? A common cliché from coaches is “next man up” — the idea that the team won’t miss a beat when plugging in a new quarterback or point guard. The system and process will take care of itself. “Next Man Up” is one approach the board of directors can take to manage succession for a family business. Despite Coach Nick Saban or Andy Reid’s assurance, we suspect that approach falls short for most family businesses. The combination of business changes, generational differences, and complex family dynamics that make family businesses unique precludes one-size-fits-all solutions to management succession. The primary questions associated with management succession are: (1) Who will be the next leader of the business? and (2) How will the transition occur? Read more about how to think about transition in Travis’s book, The 12 Questions That Keep Family Business Directors Awake at Night.

Change in Seasons

The Transitions Conference gave us a lot of opportunities to have deeper discussions with family businesses. From the 2^nd generation small businesses to the 5^th generation conglomerates, the changing seasons impacted each company represented at the conference. We’ve written previously on these changing seasons, asking whether your family business is in a season of “planting” or “harvesting.”  Knowing what season it is for your business will help you gauge how patient (or impatient) you need to be and how to deploy (or hold) capital. Broadly, planters are family businesses investing more cash flow in future growth than their existing operations generate. In contrast, harvesters generate more cash flow from current operations than they invest for future growth. How you think about capital budgeting, dividend policy, and diversification efforts are all impacted by what season your family business is in — so make sure to get an accurate weather forecast.

The times keep a-changin’, and your business and family will inevitably evolve over time. Venues like the Transitions Conference provide a great opportunity to compare notes with other similarly situated family businesses and learn how others face the challenges that come with change. We look forward to similar conversations with more family businesses throughout 2024. If you would like to discuss your situation in confidence, give one of our family business professionals a call today.