Private equity investments can serve as catalysts for growth and product development for family-business entrepreneurs by helping bring precision and accountability to those companies. Family-business entrepreneurs often fail to govern themselves well, and their output suffers as a result.
On the other hand, PE firms understand the importance of good governance and can help such companies implement strategies such as a value-added and independent board of directors, audit and compensation committees or even conduct third-party reviews of existing strategies. As a result, the company’s leadership will be better equipped to identify risks and make smart, goal-oriented decisions within their marketplace.
Moreover, family businesses can benefit from PE firms’ expertise in the areas of strategic planning, financial management and controls and shoring up companies for sustained success. Most PE firms maintain relatively small portfolios, so they can invest significant resources into engaging their companies and working with them on value creation and long-term planning. By instituting top-to-bottom incentive programs, private equity firms can drive increased productivity throughout the organization.
In today’s article, we look into why family-business entrepreneurs should embrace Private Equity Funding.
1. Do a little bit of soul-searching to clarify needs and goals
Finding a PE partner begins with organizational soul-searching. As your company’s founder and leader, do you want to exit the business or stay involved? How much money do you need to fulfill the business’s goals? What value do you offer a PE investor? Answering these questions — and knowing what you hope to gain from the relationship — will help you target firms whose expertise aligns with your outcomes.
2. Make use of the business (or online) community so that you won’t be left stranded
Know what you’re getting into so that you don’t enter a deal unsuitable or unsustainable for your company and its goals. You can meet with executives who run companies similar to yours and who’ve taken PE investments, or you can do your own research on signing on with a PE firm.
3. Measure the effort they put into the first impression
You’re likely not the first family business in your industry to accept PE funding. Verse yourself in other notable deals to be able to discuss what worked and what you think could’ve been handled more effectively. Meeting with entrepreneurs who can offer constructive criticism on other deals. This shows initiative and an understanding of what a partnership requires to succeed.
A good rule of thumb when choosing a PE firm is taking note of how much effort they put into getting to know you and making sure you understand the terms of the deal. Holding several meetings with the partners before getting anywhere near signing a contract, and often providing them with educational content to ensure that they’re clear on what’s involved. While some entrepreneurs find this process cumbersome, it’s critical that both parties are on the same page.
Taking private equity can provide a great boon to your family business, but it is a major decision. The better you know your company’s strengths, weaknesses and goals, the more likely you are to find a partner that will help you achieve your vision.
If you would like to know more about this, do join us in our next “The Working Family” event on 29 May. For more information, visit our event page @ https://herfamily.peatix.com/
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