Jim Hutcheson
Jim Hutcheson
Editor’s Note: James Olan (Jim) Hutcheson, who has 40 years of hands-on family business management and family business consulting experience, is one of the key presenters at the 2019 APDSP Convention in Dallas, Oct. 25-26. Jim will help attendees learn how to increase the value of their family firms, in preparation for transitioning to the next generation or new ownership. In this interview with APDSP Managing Director Ed Avis, Hutcheson discusses some of the key issues on this topic.
In your experience, is the transition of a family firm, either to a new generation or to new owners, more or less difficult than if a firm is not a family owned firm?
Hutcheson: Yes, in most circumstances, it is more difficult. In non-family companies, shareholders consider shareholder value or shareholder wealth above all other terms of a transaction. In a family business, although value and wealth are very important, money is sometimes secondary to the emotional challenges of a family or a founder or an heir who doesn't want the business to be sold. In a family firm oftentimes the firm is the only place the family members have ever worked. This is all they know, and therefore selling the business is scary because it changes the world that the heirs have lived with or been a part of.
A second consideration in family firms are the extra generous perks and benefits that might go away in a sale. For example, an heir might drive a $100,000 company car and receive five weeks of vacation, where the buyer may provide $30,000 cars and three weeks of vacation. Often it is merely a different philosophy and outlook.
There’s also the challenge of the family legacy. Legacy and culture are sometimes more important to the seller than the buyer. When a business is absorbed by another firm, it is the buyer whose legacy and culture that oftentimes matters most.
When a family firm is being prepared for a sale, how important is culture?
Hutcheson: Culture is always the important piece when you're selling a business. Culture is at the very top of the food chain for what makes a business sale successful. Culture has a lot to do with the way that employees view their role in the company. The culture around a family business may be very different than a non-family company or a financial buyer.
Many reprographics businesses are very mature, and not providing the exciting growth numbers that buyers often look for. How do you prepare that kind of business for a sale?
Hutcheson: If a company is not growing – and that’s the case in many industries, not just printing – it’s often helpful to get an independent, qualified professional to come in and help you think through how you can improve efficiencies. For example, many family businesses are paying for 100 percent of the cost for insurance, and allow for loose time off, like, “Okay, you need an extra week, or you want to go for a month, okay, don't worry, we'll give it to you.” So that’s where professionals enter a relationship with the seller and hold their hand while together they make some important changes. These changes may be uncomfortable for a family business owner, because they've built a culture around “We take care of our employees,” but they may be giving away big dollars for very little benefit. If owners make the hard decisions to become more efficient, they will become much more attractive to a potential buyer, and, moreover receive a greater amount in the sale.
What will attendees to the APDSP Convention take away from your presentation?
The first is that family businesses are unique to themselves. They are in a class of circumstances that nobody else experiences.
The second thing is, you're not alone. Family businesses dominate the economy, and it's only a matter of time for most family businesses to experience challenges. And so better to deal with them sooner rather than later. It's a lot easier when you have more flexibility to make change than when your back's against the wall.
And the third thing is that there are tools, proven tools and best practices to improve performance and extend the life of the business.
And finally, what I would hope that they would take away is just having some fun and remembering to enjoy their experience of work. Their work experience should be fun, and I really want to emphasize that message.
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