Transitioning the Family Business: Talk to Your Kids

Fred was in his seventies when he talked to me about transitioning his business to his son. It wasn’t a big business, just a few employees, but it was very profitable. He had a strong customer base and a dependable supplier group that enabled him to serve his customers well without carrying much inventory or overhead.

Fred figured that his son Brian would take over the business some day, but they hadn’t actually talked about it yet. Brian worked as a salesperson for the company, but he failed to measure up to his father’s standards. He couldn’t sell as well as Fred: he wasn’t as organized or motivated, and he lacked his dad’s outgoing personality. Fred was concerned that Brian wouldn’t be able to maintain the positive reputation he had worked so hard to create.

This situation isn’t unusual. Many owners I talk with face similar dilemmas. They have a rough idea of what they want to do but they haven’t discussed it with their families; they haven’t clarified their own thinking, and they’ve set up subtle barriers to communication, which makes it difficult for their children to broach the subject.

In a recent PWC survey of family businesses, 38 percent of owners plan to pass on management to the next generation; 27 percent intend to pass on ownership but want to bring in professional management to run the business. Yet, only 18 percent have developed a comprehensive succession plan that has been both documented and communicated. Too many owners have intentions but no plan and they have not communicated with their families.

That’s a big disconnect. Parents think they have it planned, but it is all in their own heads and the children have no idea what’s going on or what might happen. This creates many opportunities for misunderstanding, disappointment, anger, frustration and ultimately broken relationships.

In Fred’s case, he worked longer than he needed to, holding onto the idea that he was grooming his son to take over. Unfortunately Brian felt both underpaid and underappreciated working for his dad. He would have preferred to do something entirely different. They did not share a common end goal, and neither wanted to rock the boat.

In the end, Fred simply turned out the lights and Brian got a job in a whole new field. They both resented the last five years spent on the business. It was such a waste.

If you want your family to continue your business begin the discussion early and communicate about it often. Clarify your goals and those of your children. Is there a happy match? Set clear expectations for how you’d like the succession plan to unfold. Then start the process now, not when you are seventy.

June 1, 2018

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