In many cases, as business owners, you want your child to carry on the business and to carry on the culture. However, you only want to transfer your family business to family members who are well-suited to take ownership. A lot of family business problems can arise when not handled correctly.
In today’s video, we’re talking about:
- How to be objective when it comes to identifying your ideal successor – it’s not easy but it’s necessary.
- Why you need to consider alternatives. Sometimes keeping it in the family is not the best way to keep the peace and/or best option.
- And the key elements of communication in the context of your business exit.
Click here to watch the full video or read the full video transcript, below.
3 TIPS TO AVOID FAMILY WOES WHEN PREPARING TO EXIT
In many cases, as business owners, you want your child to carry on the business and to carry on the culture. It can be a touchy subject, but you don’t want to set these people up for failure. That’s what we’re talking about in today’s video. 3 ways that you can make sure to avoid, as best as possible, family business woes.
TIP #1: BE OBJECTIVE
You want to be objective and not put your head in the sand. When you’re starting to think about who your ideal successor is, you need to ask, “who is best suited to take over ownership after I exit?” Not, “who do I want and who is already in place.”
And it’s wise to do this before you start talking about it with your child. Don’t make promises. You really want to feel them out, just like any other employee, and treat them like any other employee until you know that this person truly is best suited to take over.
It’s not an easy thing to do. Go slowly with your succession plan and make sure that the child or the other family member that you’re bringing into the business is well suited. If you’re testing them and training them and they’re demonstrating that they are competent and they want this, you’re going to set yourself up for success and avoid failure.
TIP #2: CONSIDER ALTERNATIVES
When you’re asking yourself, who is best suited to take over ownership, you need to find out if that person even wants it. Maybe they’re well-equipped for it, but they just don’t want it. So, it’s important as you’re considering who is best suited, to consider alternatives. You might need to look outside of the family and sell the business
Let’s say you had three kids and none of them had an interest in owning the business and you don’t think any of them are well-suited. And from a fairness standpoint, maybe you have one child that’s involved in the business and you know that if you transfer that business to that child, the two other kids that you have are never going to speak to you again.
For family harmony sake, you could sell the business, put the proceeds in to your estate, and when you die, split it three ways across those three children. That would take care of the fairness aspect that often crops up in family business situations.
You could also ask your staff or employees “who do you think would be the best person to take over if I retired?” and see what kind of response you get. Who they would say might surprise you if you could get an honest answer, that’s the trick!
You want to be careful about that too. When you talk to employees, you don’t want them to give the impression that your retirement is imminent. More of a… I’m just thinking to the future here. You kind of need to feel that out a little bit, and every business is going to be different.
TIP #3: COMMUNICATE
The last thing I want to talk about is communication. No one likes family communication, but there are some key elements here that are important in the context of your business exit.
One is, if you have identified a family member for your business and you truly think that this person is best suited to take over, have a conversation with them. Maybe you’ve just been assuming all along that they want to own this business. However, maybe they don’t want to deal or stress over it, lose sleep or make business decisions. Parents make assumptions.
It’s like someone who gets married and they never really talk to their spouse about if they want kids or not. And that’s almost exactly like it would be with a business. You’re just assuming Linda or Jack is going to take over, but you’ve never really talked to him. You want to make sure you have that conversation.
The other thing that is often overlooked is, talk to your spouse. If you don’t have this conversation, you could get very far down this path towards exiting your business, identifying the next successor and then the spouse comes in at the 11th hour and says, “nope, we’re not doing that!” That would set you back to square one.
In the interest of planning an exit and being successful with it, make sure you talk to your spouse early and often. A lot of times it might make sense, especially if you have multiple kids, to have a family meeting. Meet with your kids and your spouse first individually to tell them what you’re thinking, ask for their input and opinion. Once you kind of feel like they’re all on the same page, then you can start to bring everyone together at once.
This is our take on family businesses, knowing firsthand how to handle a family business situation. It’s never easy and it’s never done. These conversations happen over time and things evolve. You might change your mind about who that ideal successor is and the path you want to go and it’s okay. The key is, you want to leave your business with the assets and money you need, and have your spouse and kids still talking to you when you do.
o be reliable, but TNRA has not verified its accuracy and does not guarantee its reliability.