The Key Elements in Selling a Family Business

December 04, 2017

Listen to a candid conversation with host Brett Dearing, a Certified Exit Planning Advisor, and experienced professional Matthew Kerzner, from EisnerAmper, on issues surrounding the sale of family owned businesses. Whether you’re thinking of selling your business or you want to maximize the value of your business, this podcast contains essential information to help you build your strategic road map.


Brett Dearing: Welcome to “The Exit,” a podcast focused on driving better outcomes for business owners facing one of the hardest decisions they’ll ever have to make – the sale of their business. This podcast will share insights from experienced advisors and other business owners on key elements around preparing your business for sale and maximizing the enterprise value leading up to that sale. Whether you’re thinking of selling your business or you want to maximize the value of your business, you always want to keep your eye on “The Exit”.

Hello everyone, my name is Brett Dearing and I am a Certified Exit Planning Advisor and the host of “The Exit” podcast. Today’s episode will focus on issues facing family owned businesses. And here to talk more in detail about these issues is our guest, Mathew Kerzner. Hi Matt.

Mathew Kerzner: Hey Brett, how are you.

BD: We’re excited to have you. I have to tell you, Matt, in looking at your bio before the conversation, it shows here that you’re currently working for your doctorate in business psychology, and you have a master of science in labor relations, and a master of arts in industrial and organizational psychology  – I definitely want to learn more about that – and you’re currently an adjunct professor for the University of New Haven and certified in dispute resolution and mediation training. Great to have you on “The Exit.” I want to make sure that I covered all of your background.

MK: Yeah, Brett, thank you for having me as part of the podcast. Yes, I’m currently in my dissertation phase of my Ph.D. in business psychology with a hyper-focus on family businesses and succession planning. That’s been a journey, and I’m very excited to have completed all of my school work and just working on my dissertation. You asked about the masters in industrial organizational psychology. For those who are not familiar with industrial organizational psychology, it is really the study of motivation and productivity and how to help organizations maximize their human capital to help them produce at their full potential.

BD: Wow. Talk about what you see out there from family owned businesses and some of the issues or challenges that they’re facing. I’m sure that with your background and credentials you’re more than well equipped to help family owned businesses deal with some of these issues.

MK: Absolutely. I’m a product of family business. My father owned a few pharmacies, and no one in the family wanted to go into becoming a pharmacist. So he ended up exiting out of his own pharmacies and sold to a big box retail and was a PML owner for six years before I got into human resources and organizational development.

BD: What was that like?

MK: It was great. It was about 18 months of their management training program to learn every department in an 80,000 square-foot building. I learned management of 250 employees. If you think of very large food retail, there’s 13 stores within one building. So it was a phenomenal start of my career to learn big business.

BD: Sure.

MK: Through that process they actually paid for both my master’s degrees. It really started resonating that I could use my educational background and my professional background to truly help business owners, family members and non-family members that work for organizations navigate through the process of working for them, transitioning  generation one to generation two, and also help the non-family members find their place working for the organization and how they can contribute.

BD: It sounds like this is a great place to transition the conversation. I’m sure, you know, with both of us working with family owned businesses, I can personally say that it’s a difficult environment, in some cases very stressful based upon the dynamics of the family members and, in some cases, it could be the reason why a business is failing. When you think about how you engage family owned businesses, how are you spending your day?

MK: A lot of my time is helping the family leadership. The family members go through what I call the discovery phase of what is going on – gathering data and interviewing them. Sometimes they have an underlying issue. It could be a conflict that they’re having with their board director, their family members, their advisory board or non-family members who are in leadership positions - but they’re not quite sure what the problem is.

BD: Sure.

MK: I go through a diagnostic process to gather data to go through a discovery phase to help them get to the root cause of some of their issues at hand. And through that I can help get to the root cause and get to a diagnostic development and then help them put some options together so they could see what will be the best fit for their organization. I mean that in revenue, I mean that in size, I mean that in maturity of the lifecycle. It could be a loss of a family member, and that could be through someone passing away. It could be a divorce that someone’s going through. It could be a sister-in-law or brother-in-law who are not part of the family because of a divorce situation. There’s many different issues that could be festering or bubbling at the organization, but the leadership doesn’t have the capabilities or the resources to get to the root cause of the problem to help them be productive. This conflict or issue could impact the stakeholders: the family members who are involved with the business and non-family members. There can be a lot of stakeholders at play here, and it really does impact their bottom line if they don’t get to the root cause of the problems that they’re facing.

BD: So To summarize, what you’re hearing and what you’re seeing when dealing with a lot of family businesses is this conflict that permeates within the business and within management. And if it’s not resolved in a way where there’s an opportunity to enhance the relationship in the business itself, it could also impact the shareholders.

MK: Absolutely. And stakeholders, not just shareholders, but stakeholders. Stakeholders are customers, stakeholders are employees, stakeholders are vendors. So issues could impact – I’ll use the supply chain – it could impact any and everything that deals with the supply chain from the cradle to the grave of the business.

BD: Can you give us one example where you’ve seen this type of conflict and it’s impact on the stakeholders?

MK: The owner of one company, who is at an age where he is still very productive with the organization, has a lot of work ahead of him. But he really needed to think of his exit strategy and that is either retire or figure out what he is going to do with the business. There were non-family members in the leadership positions, the chief operating officer, the chief financial officer and another executive, and they weren’t seeing eye to eye. The owner didn’t really have a family member to transition into the business to. It was really working with the C suite leadership to find out what the conflicts they’re having with each other, what skill sets that they are lacking, because there would seem to be a lack of – I don’t want to use the word trust, but confidence might be the right word – between the CEO and owner and the senior leadership. It was, one, how do we resolve the conflicts between the parties of the C suite and the executive team, so that they could work together to build the confidence of the owner so this individual could feel comfortable to take a step back and let the non-family members actually run the business. This had an impact with stakeholders of the people who were purchasing the material, to the non-family members at all different levels of the operation, which resulted in some turnover. There were some non-management employees who were key employees of doing the business and have been around for awhile, and they started feeling that conflict and ended up leaving the organization, which impacted the production and the profit of the organization.

BD: I’m dealing with a particular situation like that now where it’s a generation – a baked goods manufacturing company – and there’s been conflict. There are five siblings who work within the business and in the management of this business. And there’s one managing partner – one sibling who’s managing the day-to-day. The others are not necessarily phoning it in, but from their perspective are looking at the business differently than the managing partner, looking ta it like this business has done well, but I think we’re at a point in the cycle where we want to step out. And it’s creating a tremendous amount of conflict and strife not only between the siblings but also employees, to the point where morale in their business is at an all-time low. This is a company that’s been known in the tri-state area and a company that’s been doing very well but now is starting to feel the impacts of that conflict and how it’s starting to impact the stakeholders. I can hear and see how that conflict impacts everyone involved. What are some of the things that you do with EisnerAmper to help with that business owner or that family owned business to get them through that difficult time?

MK: First and foremost is gathering data and really take all of that information and analyze it in order to put a plan in place.

BD: I can see how this conflict could potentially jeopardize a business. How do you, in EisnerAmper with your resources, go through and help a family move through these types of challenging times and issues?

MK: First, we go through what’s called the discovery phase with them and we will interview all of the players who are involved: employees, stakeholders, shareholders or anybody who the family member feels we need to interview to go through the discovery phase of gathering the data to try to get to the root cause. Then it’s putting all of that information together and develop categories for us to give them some feedback on what we see as the possible root cause(s) of the problem.

BD: I would love for our listeners to be able to hear a little bit more about the services that EisnerAmper provides and how they help their family owned businesses.

MK: We are one of the premier accounting firms in the U.S., with nearly 1500 employees, including 180 partners. Clients include individuals, closely held businesses, start-ups, middle-marketing companies, not-for-profit organizations and multi-national corporations. We’re one of the largest firms in the nation, and we offer a very diverse set of services to our customers. The mission of the EisnerAmper Center of Family Business Excellence is to provide organizations with leading-edge tools, training, coaching, support and other resources to ensure the successful transition from one generation of their business leadership to the next. We help maneuver a lot of challenges that come with the transition. And some of the services that we provide could be helping setting up advisory boards, business perspectives, family charters, some leadership and training opportunities, strategic planning, succession planning, and a whole cafeteria plan of special planning needs, such as HR, estate and financial and insurance services.

BD: It sounds like you’re really helping these family owned businesses maneuver strategically and through long-term issues that have been plaguing family owned businesses for decades.

MK: Many times leadership, family members or board of directors can’t see what they don’t see. Our job is to help them see some of those things. We try to help the organization see what I call and develop a strategic road map for them to help them put their business subjectives into place.Find out why they exist. What they believe in. What they want to be today and tomorrow or into the future and then help them develop their business, operate efficiently and then develop the key players who they have in the organization.

BD: That sounds great, and I know that there are a lot of owners out there who would want to take you up on that. Let’s take a step back, because I know it’s difficult for owners and for family owned business to come to someone like you and have that conversation. I can tell you that when they’re going through these conversations or these conflicts it’s draining. It’s something that’s personal. It’s a family issue, and a lot of times these owners don’t want to seek advice or counsel outside of the family because it’s a family issue. How do you address that conversation, or how do you address that concern?

MK: Maintaining self-esteem is the number one priority. It’s going in and respecting the owner and their feelings. When you first initially have the conversation someone, like myself, has to respect what the owner has developed. When you look at a family business and you look at somebody who owns that business or a family that has owned this business, that’s like a family member to them. The organization is a child, a family member, and you have to respect that.

BD: Absolutely.

MK: So by open dialogue and having a conversation with the owner of the family business and the leadership of the family, just recognizing that alone puts the family member or the owner at ease a little bit. And it takes a little time to build trust, and I understand that and that’s something that we take very seriously. Its crucial to have listening skills and listen to what they feel is the conflict and then getting the family owner to allow us to go through the discovery phase to help them understand what they might not know.

BD: Sure.

MK: That could be just having the dialogue,. and it can take time. Building the trust is something that’s very important. But each and every business owner needs to understand that they need to make a decision of what they want to do. Are they going to hold the business, transition the business, close the business? Sometimes these emotions or conflicts can really get in their way to do what’s right for the business and for the family.

BD: I would agree with you on that. You mention time.That’s something that a lot of owners ask me. They say, Brett, I have this issue and I want to try to work with someone. I understand the personal nature of what I’m about to ask you. I’m a family owned business, I have issues with a family member or conflict, and I need help. This is a tough question to answer, but when you think about time, how long do you normally engage a family in this process?

MK: It really depends on the complexity of the situation.

BD: Sure.

MK: It could be in the first initial conversation when people say this is the problem, and then when you go through the root cause of asking the whats and the whys at least five times through the conversation, and you find out that the story changes a little bit.

BD: Sure.

MK: When you start finding the key players, now there could be two or three people in the family business whoneed to be interviewed,  it could happen fairly quickly or it could be very complex where there are multiple layers and people who need to be spoken to in oder to get at the root cause.

BD: Sure.

MK: So it’s hard for me to say. It could be something that’s done in one phone call, five phone calls, five visits to the facility or organization. It all depends on the complexity of the situation.

BD: So what you’re saying is we go in and we try to find out what those issues are, those challenges that these owners are having, and you’re there as a support mechanism to help them through that. And not only help them through that, but you’re there to help  enhance processes that put them in a better position to be able to deal with those conflicts, move past them and put the business on better footing. It sounds like that’s where the real benefit to a business owner is in having this kind of engagement with you.

MK: That is correct. And there’s nothing more satisfying to help the business owner or help them make that strategic business decision that they wanted to have, but have the conflict in the way of making that decision.

BD: This is something that I see every day, and I’m sure you see more than I do. It’s painstaking to see a lot of these individuals who have struggled so much and have sacrificed so much to really build this family owned business, to see them really dealing with these types of issues and how these issues can impact the business. It’s always hard to watch as an outsider.  To have somebody that’s able to go in and help them through those issues and help them through those difficult challenges is something that I know I feel a lot better about, and I’m a lot more confident that I’m able to impact that change by having someone like you as a part of helping them in that discussion. We always focus on helping business owners get ready for that one difficult time in their life, which is really parting ways with their “baby” as you put it. Getting ready to sell the business is a difficult discussion. When you think about dealing with family owned businesses, how do you help a business owner get through that decision?

MK: There’s four major players who the owner needs to think about. One is themselves and their leadership team, so I call it the leadership of the organization. If they’re deciding that they’re going to exit and sell the business  it means that they didn’t have a succession plan or didn’t have the right player or person or family member or non-family member to succeed them. So it’s really going through the process to make sure that this exit is the right exit. So there’s a lot of discussion around do they have a successor? Did they have a thought process in place for that? Then it’s thinking about the family members that might be impacted who currently work for the organization or indirectly have a lot of involvement through developing the mission, the values and the goals of the organization. How are they impacted in this?

BD: Right.

MK: Lastly, and I always tell business owners, you can’t forget about those people, the loyal soldiers. Those people, the non-family members, who have been loyal to the organization.

BD: The one’s who’ve been there since day one.

MK: From day one and help them start and are key players, what are we going to do about that group?

BD: Sure.

MK: Are there opportunities for them after, or do we help them transition as well? That’s another critical piece that business owners need to think a little bit about because there’s absolutely a ripple effect when they’re planning to sell the business.

BD: One question that I always like to askis if you think about what you deal with and who you’re dealing with on the day-to-day, family owned businesses, dealing with some challenging issues, what is the single one piece of advice that you would offer a business owner who’s listening now?

MK: Start sooner rather than later. Think through what you’re going to do for your strategic road map. If you don’t have a 3-5 year business plan, start now.

BD: I’m sure that there are business owners who are listening to this podcast that would want to have a follow up conversation with you. How do they find you at EisnerAmper?

MK: Thank you Brett. They can also call my direct line at 732-243-7810, and they can also look me up in LinkedIn and send me a message.

BD: This has been a great conversation and I think one that’s been enlightening for our listeners. Thank you Matt. We appreciate your time here on “The Exit.”

MK: Brett, thank you. I enjoyed our time today. Thank you very much.

BD: That’s our podcast for today. Stay tuned and listen in next time. We appreciate your time and have a great great week.

MK: This concludes this week’s podcast on “The Exit.” I’m your host, Brett Dearing and remember, always keep your eye on “The Exit.”.

About Matthew Kerzner

Matthew Kerzner is a Managing Director in the Center for Individual and Organizational Performance and the Center for Family Business Excellence. Matt has more than 25 years of experience in organizational development with a specialization in assisting family businesses and closely held businesses.