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Pareto Principle and the Family Business

Pareto principle and the Family Business

A “universal truth” about the imbalance of inputs and outputs is what became known as the Pareto principle, or the 80/20 rule. While it doesn’t always come to be an exact 80/20 ratio, this imbalance is often seen in various business cases, Here we will address how not to sell a family business.

0% of all businesses do not sell, and only about 30% of family businesses get handed down to the next generation. If it doesn’t sell and isn’t passed down, what happens? Typically, they die a “slow death”, or are liquidated. Understanding why businesses don’t sell is the key to maximising the value of your own family business.

Many family businesses are “lifestyle” businesses – they deliver cash to the family, but are starved of the investment and strategic thinking needed to grow them and make them sustainable For too many of them, much of their value is tied up in family members (and their personalities). And most owner-founders have over-inflated expectations as to the value of the businesses they have created.

The way to make your business more sellable is to put yourselves in the shoes of a prospective buyer. They would ask: what intrinsic value are they getting for their money once the founders/owners leave? Are the accounts and structure ‘clean’? Has the business been getting enough re-investment to grow?

The process of making your business sale-ready is best achieved through externals (who don’t wear your rose-coloured glasses) and through the establishment of a governance structure that can regularly examine “big picture” strategic issues facing the business. Making you family business sale-ready, even if you have no intent to sell, is a worthwhile exercise in itself.

Consider This: Have you considered the future scenario of family members wanting to sell your family business? Have you ever had it assessed for sale-readiness or valued by an independent? Do you consider its long term disposition in risk assessment?

Original article:,

Actionable Generational Wealth Succession

For more in-depth, thought-provoking discussion points and further commentary on family and business conflict resolution, access my Familosophy newsletter archives by signing into our newsletter We will send you the archive links from there.

#familyoffice #wealthmanagement #conflictresolution #strategicmanagement #successionplanning #workfromhome #governance #leadershipdevelopment #familybusiness #entrepreneurship

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