If You Run a Family Business, Consider Private Equity

When you think you need to grow your family business, don’t rely on loans from uncle Bob or aunt Sally. Think about the impact that private equity can make. You don’t need more cash from family members, but a strategic inflow of capital that can come with management, leadership and actual value beyond money.

With the new tax plan proposed, family businesses can get a huge leap in the social investment and corporate growth phase.

The negative reputation and fallacies

There are many negative connotations when you think of “private equity’. You think about the housing crisis, and the financial bubble that almost wiped your business out 10 years ago. But that’s not the case. Sometimes these PE companies are run by families like yourself and have a long-standing history of committed lending of capital.

The vast majority of PE firms are good and have a long history of creating value for family businesses across the world. While many may be sceptical of their promises, when a PE commits to something on paper, they deliver. They provide the help and support you need, and more importantly they have insights into running family businesses after being in the business for years.

They know the best way to grow your business so that you can focus on creating better products for your customers. They partner with you to figure out the business problem at hand and create solutions that help your customers out immensely.

The negative reputation may only stem from a few bad apples and the movies. It’s easy to get swept away in the hysteria and you must be able to connect with a PE advisor as soon as possible.

When considering Private Equity

When should a family business lean on PE money? PE investments can serve as a huge catalyst for your business and product development. It can provide you the cash you need when you need, and they keep a close track of your business’ performance.

They’re even advisors who you can call up anytime to get an opinion on something you’ve been mulling on for days. When a family business is run too close-to-the-chest, it has a stronger chance of failing from becoming redundant.

PE firms are better than taking a loan out, because of their professionalism and the way that they conduct business. They are courteous and humble and provide the insights that you need to be able to process your business requirements.

There are strategies such as implementation, value-add, and auditing that no other loan-providing companies can do. Not even the banks will go into such detail to help your business out.

They also prepare a business plan just in case you’re looking for one and can provide you with the right set of tools so that you can flourish. You don’t want to miss out on the chance to learn from them and listening always helps out in case you’re feeling a bit lost.

A family business may have grown from years of development in their specific area, but when it comes to expertise in strategic planning and management, they may need outside help.

They need people who can guide them through thick and thin, and someone who can provide customized solutions to their needs.

They also focus on small business as a principle, so that leaves you with experts that have more insights than banks, more capital than family members or loan-agencies, and more insights on running businesses than most family businesses.

This creates a strong desire for their existence and they’re thriving as a result of that. You want to look at their portfolio before committing to their strategy and take a look at all the options that they are providing you.

What are your goals?

As a family business, you need to do some soul searching to be able to answer the difficult questions in life. Is your business going to survive a downturn? Will it have the cash needed to survive the market? Does it need operations help and you don’t have the capital necessary?

These are the types of questions that you need to answer before you can develop a strategy that’s unique to your needs. PE can be a good partner for life, and you need to be clear with them about your exit-strategy, go-to-market plans and relationship. Businesses that aren’t connected to their core, fail in the long-run

Research your options

When seriously considering your options, don’t forget to do your research. You want to meet new people, network with groups and understand the impact of the PE in the first place. Whether it’s important to bring one person on-board or many, is up to you and you should have the final call.

You should know what you’re getting into so that you enter a deal that’s unsuitable to your needs and the company suffers as a consequence. You must look at your current scenario and find answers that don’t involve PE. If you can’t come up with one, then it’s time to look at PE as a solution.

What was your first-impression?

How did you feel when you first met them? Were they polite, courteous and humble? Did they ask the right questions or jump straight into the nitty-gritty? How well-versed were they when it comes to your industry and subject area? You need to follow your instinct here, a little bit, as you come up with the answers to some of these important questions.

Since first impressions are really important, you want to be able to form a relationship with them that’s based on mutual trust and admiration. If you don’t trust their advice or they appear too ‘Wall-street’, then these guys may not be the right ones for you.

Conclusion

About 80-90% of all business in the US are family-run and it makes sense to promote them as much as possible. Keep in mind that private equity can alleviate much of the uncertainty around cash and taxation, so that you can sleep well at night knowing that the PE company has your back.