Make a Succession Plan for the Family Business

Chris,

I’m 40 and my wife is 38. For the past 15 years I have been working in the family business with the idea that I would take it over soon. We have lots of ideas for growing the business and we want to take care of my folks in their retirement. Dad just won’t let go of the control. I need to take care of my family and know I could do better if we started our own business. Dad is pushing 70 and I don’t want to see him work until he has a heart attack on the job. What can I do?

All Too Common

I get cases like this every week. They’re the toughest to fix. They are by far the saddest. Relationships fracture. Families are torn apart. Grandparents lose grandkids. Holidays are terrible.

What really gets me is that it is so unnecessary.

It’s a family disaster that can be avoided with a little planning. That’s it.

What the Younger Generation Wants

Simple. In working with dozens of family succession cases, I have never, ever seen the kids complain about the price of the deal. In fact, most are willing to pay a bit more than the business is actually worth. The kids will agree to provide income and benefits to the retiring parents. They will meet any terms that they can see can be handled by the business. So then, what do they want?

Clarity.

It’s that simple. They just want to know what the plan is so they can look out for their future. Too often the kids stay in a business because they have been promised that it will be theirs “someday”. So they wait. They work. And they wait some more.

They get frustrated and start pushing. They want no more than clarity. They want a plan. It’s that simple.

Why Can’t the Older Generation Let Go?

That’s a very complicated question. I’m getting up there myself so I understand the feelings around coming to the end of one’s working career. It’s hard. But, I cannot imagine how proud I would be to see my son or daughter take my legacy and carry it forward to a new generation.

Sure, it’s hard to hand the business you’ve built to a “kid” who will always be a kid to you. You know how hard business can get. The kids were out riding bikes and playing soccer while you were working 15 hours a day trying to keep the doors open. You paid off the loan that put the family home in peril. You took all the risk and did all the work. Now, today, the business is thriving, but you know how quickly that can change. Remember 2008? Remember the recession of the 90s? Things can get tough. Real tough. 

Nope. It’s not easy to let go.

It’s Never a Good Time to Hand It Over, Right?

I’ve worked on a few cases over years. I got the call when things were going GREAT. Business was booming and the profit was the best it’s ever been. It’s hard to step away when you are raking in the money! During these times you know the business is worth a lot. The account says you can get double what it was worth 3 years ago. You want to build up a little cushion before handing over the business to the next generation. Tension builds up because the son or daughter sees Dad as being greedy. I understand that it’s just hard to let go when you finally have everything going so well!

Then it happens. Sales slow down. Big, reliable clients start asking for discounts. Everybody is complaining about price. Your costs start rising. You might even deplete the company’s cash reserve. 

Your son gets cold feet. If they take over now, how can they afford to pay you what you think the business is worth? Again, things get tense. The cash is gone and customers are fleeing, now you want your heir to take over?  They agree to take over but they refuse to take on a massive debt to you. 

There is never a perfect time to have your successor take over the family business. 

Our Identity

For those of us who build a business, we get a lot of our identity from that creation. It’s largely who we are. Our business is the answer to the question, “What do you do?” For many senior business owners, handing over their business is a big emotional step. I always encourage the kids to be patient and help the older generation get comfortable with succession.

But There’s a Limit

It’s not fair to expect the kids to wait forever for their chance to run the business and make the parents proud. When the kids get past 30, they’ll want to exercise their abilities and control their own future. When the parents wait too long, the frustration can tear apart a family. I’ve seen kids start competing businesses and do better than their parents! Talk about tension!

What to Do About Succession?

I’ve never seen a situation where the kids wanted to throw the parents to the wolves and take the business. Sure, those situations exist but they don’t come to mediation. In the cases I see, the kids want to be more than fair. They’ll pay more than the business is worth in many cases. They often express a desire to take care of Mom and Dad. But the parents just won’t agree to anything definite.

Make a Plan

That is all the kids want. A definite plan. What will they do to support the parents and when can they take charge. That’s what they want. They want to know two things: When and At What Cost?

Make a plan. Include dates and your expectation of payment (if any). 

Have everyone sign it.

Stick to it.

Plan Ahead

You should have a succession plan in place years ahead of time. That plan should provide for the senior generation’s retirement. If done properly, the kids can take over without being debt-strapped. Parents always tell me that they don’t want their kids to have to go through what they did and yet they put their kids through the wringer when it’s time for them to take over.

All the arguments can be avoided with planning.

If you really care about your kids and want them to take over the family business, make a plan and give the next generation the security of knowing what they need to do to take over the business and when they can expect it to happen. Isn’t that reasonable?

If you want help with a succession plan for your family business, call me. I’m ready to help you plan.

Even though I’m a Mediator, I would rather make a plan that avoids Mediation!

Chris Reich, Business Partnership Mediator

“You can avoid a lot of hurt in the family by simply making a succession plan for the family business—and sticking to it!”