Tuesday, January 16, 2018
Transitioning ownership of the family business can be tricky. Many times, when transitions are not successful, the root cause is the people involved, not business conditions. Having the right subject matter experts advise through the transition ensures that the family is structuring the transition for success, and having a family business advisor walking you through the process can minimize the sticking points, provide a calm for passionate emotions, and help maintain unity in both the short term and the long term.
There are some common themes in family business transitions that go awry: a senior generation that can’t let go (either business is going well and it is too much fun to let go or the business is struggling and the senior generation feels like they have to get it back on track); lack of confidence in the rising generation; indecision in selecting the next leader; avoiding difficult or awkward conversations; emotional identity in the business; or a rising generation that can’t work together.
For a successful transition, one of the critical pieces is giving voice to both spoken and unspoken concerns of those involved. For example, for an owner or founder, it is important to articulate his/her objectives in transitioning the business, plans for the next phase of life, and willingness to hand over the reins. The spouse of the owner also has concerns that need to be surfaced and addressed, which may range from a concern for financial security in the golden years to peace between the next generation to how the couple will spend their time in retirement. The rising generation consists of both those working in the business and those who have no daily interactions with the business (which in and of itself can be a source of contention) and has its own concerns that need to be addressed. There may also be blended families, or an unwillingness of one family member to take direction from another, or arguments over voting and non-voting shares, or other issues under the surface. The transition must also consider the concerns of key non-family employees in the business.
In order to navigate the pitfalls and help address the concerns of the many stakeholders, we believe it is imperative to have an independent third party family business advisor to help guide the transition journey. The team of subject matter experts that will help structure and execute the transition may consist of: a corporate lawyer who recognizes the client is the family and not one individual; a CPA who must provide the accurate numbers for current financials and future projections and tax implications for all family members; a Certified Valuation Analyst who will work with the CPA to determine the accurate value of the business; and an estate planning attorney who will make certain that senior generation’s plans are adequate and that the next generation’s estates are in position to accept the ownership.
A family business advisor is the constant thread throughout the process to help navigate the pitfalls, keep the expert advisors focused on the goals of the family, and help the family address the concerns of the various stakeholders. Don’t do this alone. Invite a family business advisor to help you navigate the journey.
Tuesday, January 2, 2018
To borrow from Charles Dickens’ famous opening in A Tale of Two Cities: Family businesses can be the best of times, and family businesses can be the worst of times.
When working well, family businesses can unite families, provide meaningful employment for generations, and create a tangible expression of a family’s values. Patient capital and utilizing the competitive advantage of family-ness can lead to outsized returns over generations. On the other hand, family businesses gone awry can ruin financial opportunity and tear families apart. What makes the difference? What can families do to increase their likelihood of fostering the “best of times” across generations?
Good family businesses understand and address the three systems that they face: the family system, the ownership system, and the management system. Families and family leaders that recognize and manage these three inter-connected systems have a higher likelihood of sustaining success, both as a family and as a business, over multiple generations.
These three systems are complex things, and the intersections of these interconnected systems can be daunting. For many leaders, addressing issues that impact both the business and family (for example, the need to terminate the employment of a family member) may be unsettling or uncomfortable. What is important to remember is that systems and families work because they interact in ways that are not easily quantified. Haveing the courage, as a family, to address the issues will help develop systems for sustainability.
Family businesses that survive for multiple generations need structures to help manage relationships and the inter-connectedness of the three systems. Family business leaders need to be proactive in finding ways to address the uncomfortable or difficult circumstances within all three systems. By developing healthy ways of addressing these issues, it will strengthen the potential for positive business growth. Oftentimes an outside resource can be effective in helping both the family leaders and the family in discovering ways to create positive solutions.
Figuring out what the issues are and how to address them is a challenge, but it is a healthy part of growing together.
As a family, to start the family conversation, check out 20 Questions Practical Checklists ForBusiness Families.