Nothing seems to stretch the familial bonds further than when it’s time for the successful business to change hands – either to be passed to the children, or to be sold to a non-family member. The impact on the family can be wonderfully rewarding, or it can be devastating. The difference usually depends on how much advance planning has been done by the owner.
An owner/parent occupies two roles in a family business and it’s extremely difficult to separate those roles without dramatically affecting the members of the family. Sometimes both parents and children find it hard to be honest about their true feelings. The strong, independent father doesn’t want to show vulnerability, that he actually needs the help of the children, or that he longs for them to carry on the business to which he has devoted his life.
Children may resent the fact that the business has kept Dad too busy and distracted while they were growing up, but are reluctant to bring that up because they know how important the business is to Dad, and know that the business has also provided them with financial stability.
Unfortunately, there’s no shortcut to family succession planning. It requires serious (and sometimes tough) discussions with total honesty and openness. If a child takes the reins of a family business only because a parent wants that, it usually leads to either a business or personal disaster. It is far better to keep the family intact than it is to keep the business in the family.
Questions about the Children
Many business owners assume that their children will want to carry on the family business, but this is not always the case. So begin with a heart-to-heart discussion. It’s important to understand what the children want and expect. If any of the children are interested in carrying on the business, you’ll need to realistically and objectively assess each child’s qualifications and abilities to do so.
If your children already work in the business, you can evaluate their performance and their strengths in such areas as marketing, administration, finance, and operations. If a child is interested in the business but not currently working there, you should get them involved as soon as possible. You should provide that child with the necessary experience in the day-to-day operations of the business. Let that child work his or her way up the ladder in non-management positions, gaining important experience. This will help non-family employees accept that child more readily.
One of the biggest obstacles in transferring to family is how to ensure that the business will continue to be profitable and growing. Selling or transferring to family has the same problems as transferring internally to employees. The big hurdle is management training. If you have been running the company successfully then you will now need to train family members to do “what you do.” This takes time, often three to five years.
It is helpful to have your business plan outline the steps of the transfer, and establish goals that can be monitored and measured at regular intervals. If enough time is allowed, the training can be carried out in a slow, purposeful, and organized fashion. A multi-step transfer allows you to control the process, and relinquish management duties over time in small pieces.
To have someone in charge of a business who doesn’t have the personality, skills, or knowledge to successfully run the business is unworkable – even if that person is your child! However, the best person to run the business is often not the same person that a family’s dynamics would indicate. It’s not necessarily the oldest child, the “born salesman,” or the daughter with the MBA. Every business is unique, and there are no easy answers in succession planning.
In addition, as a parent you may be hesitant to face the emotions or even accusations about having a favorite child, or arguments about who is smarter, or better with people, or better with money. It’s easy (and not uncommon) for emotional issues to cloud and confuse the discussion about what is best for the business. Using an outside advisor who specializes in both family and business dynamics allows a more objective input into the decision. Once that decision is made, ensuring that the family members are groomed to be successful becomes equally as difficult to do.
How the Sale of a Business Affects the Family
Sometimes family members have an inflated sense of the value of their contribution to the family business, and feelings of jealousy can easily arise. Also, it seems that, no matter how large the sales price, nor how high the payouts to family members, sellers are overcome with uncertainty about the sale process. Was the price high enough? Will I be able to continue or improve my lifestyle with this newly- found wealth? Will my future business endeavors be as successful as the business we just sold? These are all very normal emotions for the selling family.
The family routine probably suffers the most. Family discussions of routines, how the new at-home person fits into the routine (not dictates it), voicing the hidden expectations and fears, all become very important.
Working hard in the business may serve to mask family, communication, and relationship issues. Once the business routine is lost, the underlying relationship issues become obvious. Being home full-time exacerbates those same issues.
Plan on spending regular discussion and planning times prior to the transition, make the transition gradual if possible, and most importantly, include the thoughts and feelings of all of those involved to help move through these intense family and personal changes.
The sale of the business frequently changes family finances dramatically. Family expenses have been run through the business, and the income stream is typically consistent. Whatever the expectations of the finances have been, most often the new finances will be different. Fear is a routine visitor when any change occurs, and the more dramatic the change, the deeper the fear. An open discussion about the impact, planning for the impact, and understanding the underlying feelings becomes more important than ever.
Oddly enough, many selling families realize that their financial position is even more precarious after the sale than it was before the sale. That’s because the business usually paid some discretionary expenses, such as automobile, entertainment, and travel that are now borne by the individual. The selling family may be surprised to learn how much their lifestyle has actually cost, and they may have trouble sustaining that lifestyle.
Also, most sellers are now faced with the prospect of investing a large sum of money, and most people have limited experience or expertise in investments outside the family business. The prospect of losing some of their sale proceeds in the investment markets is very troubling, and for some, it is the biggest challenge they face. Couple that with the fact that most people have an unrealistic view of what is needed to live for the remaining 30+ years of their lives, and it’s easy to understand why the sale of the business is so stressful.
A partial solution is found in advanced planning to figure out your real costs of living for the rest of your life, and a realistic value for your business. Because of the blood, sweat, and tears that have been invested by owners in their businesses, many have an inflated view of its value. Purchasers look at how the business compares to the return on other investments, commonly seeing a much lower value. The gap between those two figures has to be closed in order for the financial end of the transaction to be successful. Thorough planning with the help of a professional advisory team can help reduce the stress to manageable levels for everyone involved.
The Impact on You
“Honey, I’m home!” While those words sound great the first day after a successful sale, they may become the source of considerable consternation soon thereafter. The typical business owner works an extended work week; 50+ hours is not uncommon. And most of the mental energy of that person is used at work. When they are at home, time is quickly filled and they are back to work.
Meanwhile, the family has learned to go about and build their own lives, rather than just sitting around waiting for the business owner to appear. In addition, most business owners are used to being in charge. Coming home full-time and being in charge usually just produces a lot of conflict.
Another major source of conflict comes from the fact that the business owner has many emotional needs met at work. Their sense of value or importance, the challenges, the sense of accomplishment, and many more subtle needs are no longer being met. Having a place to go, as opposed to just moving away from the business is a completely different psychological position. Ask yourself where you want to go next, how that will help you feel good, and then plan for that change.
If you have questions, click here to contact us to set up a time to discuss this with you.