March 11, 2022 by Interchange Capital Partners
By Brian Baum, CEPA®, CFP®
Your family business means more than just numbers on a balance sheet. It's where individual hopes, family dynamics, and business realities all come together. But it's tricky figuring out how to grow the business while keeping family relationships strong.
Over the years, we've noticed something interesting - trying to treat a family business like any other company misses what makes it special. When you're building something to last generations, you need a different approach.
Think about it - you're not just running a business. You're managing individual dreams, family relationships, day-to-day operations, and ownership questions. Each demands attention, and they don't always point in the same direction.
Step 1: Clarify Your Goals
You built your business on a dream, but it took a spark to get you to act on it and turn your vision into reality. So, begin with pinpointing the spark. What would it take for you to hand over the reins of your business? Most business owners surveyed wanted to find a buyer or successor meeting their requirements. The second highest number of owners wanted to be financially secure enough for retirement. Other business owners wanted to continue working on their business until a certain age or for as long as their health allows, or wait until their business reached a benchmark value.
Next, picture life after selling your business. Does the thought of leaving work behind send you into a slight panic? Some owners want to stay involved in their business without the stress and responsibility of ownership and may enjoy stepping into a part-time or consultancy role. Others prefer to make a clean break after selling their business to enjoy retirement or seek out a new challenge. What will your third act be that will keep you excited for the future without running your business day to day?
Step 2: Determine Your Needs
With your end goal in sight, the next step is to determine what you need to do to reach it. For many business owners, their business and personal lives are intertwined and the business makes up a significant component of their net worth. Balancing your personal needs with the needs of your business is a top priority. As a result, you can’t underestimate the importance of long-term planning to evaluate your retirement needs and the corresponding portfolio necessary to meet them. Do you know how much you need in your portfolio to retire comfortably?
Step 3: Fill the Gap
Next, compare your financial needs to the value of your business. Business owners typically have a sense of what their business is worth, but the best course of action at this point is to consult a qualified value advisor. A business appraisal will provide you with an objective opinion of fair market value along with analyses and evidence to support the conclusion. They will be able to run a gap analysis on the value of your company today versus what you will need after taxes to cash flow your life. They will also be able to take you through a process that will focus on maximizing business value today. If you have a successor or strategic purchaser in line, you may also want an estimate of investment value, or liquidation value if you plan to sell off assets.
A key obstacle for many business owners is knowing how to maximize their business’s value in the eyes of a potential buyer. In fact, 33% of business owners perceive the need to improve their business as an obstacle preventing them from leaving. A business appraisal provides a secondary benefit of objective insight into a business’s value drivers and competitive advantages and disadvantages. Applying that information toward improving your day-to-day operations will help increase profits and chances for a favorable outcome when you’re ready to sell.
Step 4: Look to the Future
Is your business set up to run smoothly without you? Potential buyers are interested in businesses positioned for continued success under new management. Implementing standard procedures and maintaining clear financial records can go a long way in showing buyers that your business is sustainable. Additionally, begin delegating your responsibilities to other key employees, and take steps to cultivate the next generation of management, including a compensation structure that provides them the incentive to see the business through a successful transition.
Step 5: Take Action
Would you like to learn more about how we help family businesses navigate change while staying true to what makes them special? At Interchange Capital Partners, we use our stage-by-stage Clarity Foundation™ for business exit planning. The goal is to understand your needs and objectives, the value of the business and its future growth potential, and to develop an exit strategy for the most favorable outcome. To set up an introductory meeting, email us at team@interchangecp.com or call our office at 412-307-4230.
About Brian
Brian Baum is the CEO & President of Interchange Capital Partners, where he leads the development of innovative strategies tailored to the unique needs of private and multi-generational companies. Early in his career, Brian conducted over 1,000 interviews with CEOs, Presidents, and Chairmen of privately held companies, uncovering a critical insight: the larger the company, the more likely the owners were to struggle with complex family, business, and ownership dynamics. Even more striking was the realization that many of these business leaders were unaware of these complexities and the sophisticated level of advice needed to effectively navigate them.
Armed with this understanding, Brian has been instrumental in reshaping Interchange’s focus, aligning its services with the lifecycle of generational transitions. His approach provides owners with expert guidance through the critical phases before, during, and after an ownership change, addressing both the immediate needs and the long-term vision of the business and family. Under Brian’s leadership, Interchange has become a leading resource for business owners seeking to solve intricate challenges and create lasting value.
Brian's vision extends beyond traditional financial advice; he positions Interchange as a family business advisory firm, recognizing the interconnectedness of family and business in creating enduring success. His leadership is not only about working to optimize financial outcomes but also about enhancing the overall well-being of the families he serves. Interchange’s work involves coordinating all aspects of a family's financial, business, and ownership strategies, akin to managing an outsourced family office, ensuring that no aspect is overlooked.
Brian’s educational background includes a Bachelor of Arts from Penn State University, where he majored in Psychology and minored in Business. He is also a Certified Exit Planning Advisor (CEPA) and a CERTIFIED FINANCIAL PLANNER™ (CFP®).
Outside of work, Brian enjoys spending quality time with his wife, Natalie, and their two daughters, Quinn and Blair. He is an avid golfer and enjoys the occasional scotch and cigar. To learn more about Brian, connect with him on LinkedIn.
Interchange Capital Partners, LLC, (“INTERCHANGE CAPITAL PARTNERS”) is a registered investment adviser with the Securities and Exchange Commission providing investment advisory and financial planning services. Any reference to the terms “registered investment adviser” or “registered” does not imply that INTERCHANGE CAPITAL PARTNERS or any person associated with INTERCHANGE CAPITAL PARTNERS has achieved a certain level of skill or training. A copy of INTERCHANGE CAPITAL PARTNERS’s current written disclosure (ADV 2A Firm Brochure) discussing our advisory services and fees is available for your review upon request. INTERCHANGE CAPITAL PARTNERS, in addition to providing investment advisory and financial planning services, provides business consulting services. In connection with its business consulting services, INTERCHANGE CAPITAL PARTNERS does not provide tax or legal advice.
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