As baby boomers prepare for retirement, family businesses across the country are facing a difficult moment. Transitioning leadership and ownership is a complex process, often tougher in family businesses, especially for Black-owned businesses that face unique obstacles to succession planning and succession recognition.
This week continues Small Business Radio Program, Carla Trotmanwho’s the CEO of Electro Soft, Inc, a Black-owned electronics manufacturing company, discusses her first-hand experiences with all of these challenges.
With his own history of running Electro Soft, Inc. through the COVID-19 pandemic and the long transition process, Karla brings a wealth of personal experience and practical advice. She can be the creator of “Dark, Dirty, Dangerous: The Vibrant Future of Manufacturing,” which explores how diversity and inclusion can redefine American manufacturing. Importance of family businesses: They play a key role in the economy and are sometimes characterised by strong values and a long-term vision.
Karla’s Journey: Initially tired of the family business, Karla pursued a corporate profession before seeing the value and potential of continuing her parents’ legacy.
Leadership Shift: A Paradigm Shift
One of the key challenges in family businesses is the decision whether handy over management to the next generation or to sell the company. Karla highlights the need for a paradigm shift in viewing these businesses – not only as burdens to be transferred or sold, but as useful assets that could be leveraged for future opportunities.
Practical advice:
- Early planning: Start succession planning early to make sure a smooth transition.
- Open communication: Engage in honest conversations with family members about their interests and intentions with the company.
- Professional Tips: Consider hiring a consultant or business advisor to ease the transition process.
Building trust amongst employees and customers
Karla’s approach to taking up the family business was to construct trust with employees and customers. Before officially becoming owner, she spent three years running the company behind the scenes, ensuring employees felt comfortable together with her leadership.
Strategies to construct trust:
- Transparency: Be open to your plans and vision for the company.
- Entanglement: Involve employees in decision-making processes and actively seek their input.
- Consistency: Demonstrate consistent behavior and meet commitments.
Financial transactions and family dynamics
Transferring ownership in family businesses often involves complex financial transactions. Karla’s transition involved a structured financial transaction, akin to her parents’ buyout loan. It emphasizes the importance of ensuring fair remuneration for the outgoing generation.
Financial considerations:
- Structured transactions: Explore alternative ways to structure financial transactions, akin to loans, buyouts, or gradual ownership transfers.
- Fair compensation: Ensure that the outgoing generation receives fair remuneration for his or her years of labor.
- Professional advice: To navigate the complexity of the transaction, seek advice from financial advisors or accountants.
Unique Challenges for Black-Owned Businesses
Karla addresses the specific challenges facing black-owned businesses, particularly in securing financing. Despite having the vital assets and a willing guarantor in her father, she faced significant obstacles in obtaining a conventional loan.
Overcoming financial barriers:
- Building relationships: Establish strong relationships with financial institutions.
- Alternative financing: Explore alternative financing options akin to SBA loans, grants, or community development financial institutions (CDFIs).
- Advocacy: Advocate for more inclusive lending practices that recognize the unique challenges faced by minority-owned businesses.
The role of representation and mentoring
Representation and mentoring are crucial to inspiring the next generation of entrepreneurs. Karla shares how young people of color often visit her company and express surprise to see a woman running a business, especially in a STEM field.
Promoting representation and mentorship:
- Visibility: Increase the visibility of minority business leaders to encourage young people.
- Mentoring programs: Establishing mentoring programs to offer guidance and support to aspiring entrepreneurs.
- Community involvement: Collaborate with local communities to advertise entrepreneurship and supply resources to minority-owned businesses.
Listen to the full episode on the Small Business Radio Show
