Survival of the family business
By John J Keough -- Industrial Distribution, 10/1/1998
It's never been harder to run a family-owned distribution business than it is today. Mergers and acquisitions are having a tremendous impact on family-managed distributorships. In fact, Industrial Distribution's 52nd Annual Survey of Distributor Operations, released in July, shows a tremendous drop in family-managed distributorships. Only 47 percent of the respondents to the study identified themselves as operating a family business compared to previous surveys that showed more than two-thirds of distributorships were family owned.For some of these businesses, the time is right to sell. Multiples have never been higher and the investment community is extremely interested in acquiring and expanding regional distributorships. Combine that with the fact that we're in an age of shrinking margins and that competition from national chains as well as nearby mass merchandisers is increasing, and you can see why the trend is emerging. There is also the perception in our industry that in order to survive, you must either grow through acquisition to achieve economies of scale or become a strong, niche-oriented player.
I recently talked to a distributor -- a third-generation family-business owner -- who made the decision to sell and has never been more content. He's now working for the new company. "I've never been happier," he told me. "I'm working a regular schedule. I don't have to worry about meeting a payroll and I get a check every week. There were times in my business when I didn't even draw a check."
Selling out, however, isn't an option for everyone. "There's no way I'd sell out," one long-time business owner told me. "This business has been in my family for three generations and nothing could convince me to sell."
If you do plan on keeping your company, you may have to adopt a new business strategy. For example, some of the key people involved in running the business may lack the necessary skills to bring you into the next millennium. That may mean replacing some family members in management positions. Experts advise family-run companies to "renew the organization with new people and a modern perspective."
Several years ago in an ID article, family business expert Dr. John Ward pointed out that the best way to maintain a family business is by maintaining the loyalty of old employees and bringing in new talent from non-family circles.
The survival of the family business depends on how well it prepares for the future. Failure to groom new leaders and define the future ownership structure can cripple or destroy a business in the years ahead.
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