Growing up in an entrepreneurial family is a unique experience. While the other moms and dads are heading off to work in offices and factories, your parents are making their own way in life, with no one else to rely on to feed their families and keep a roof over their heads.
Anyone who has ever run a business knows just how hard it can be. Entrepreneurs and business owners do not have a steady paycheck to rely on; they need to create their own income source through their hard work and ingenuity. Those who succeed can be handsomely rewarded. Many studies have shown that starting a business is one of the keys to financial success, and many business owners consider paving the way for the next generation to be part of the job.
Now that many baby boomer business owners are reaching retirement age, they face a different kind of dilemma. These successful business owners have already built successful firms and raised their families. Now it is time to sell the business and move on to the next stage of their lives.
For some baby boomers, that means passing the business on to their sons and daughters so they may continue the legacy their fathers have built. For others it means selling the company to a trusted employee or putting it on the open market.
Video: Transferring a business to inside family members is fraught with drama and many times inequalities among non-working siblings. Working through the relationships connected to the business transfer is harder than designing the buyout. Business succession expert Nate Sachs addresses the dynamics of family business succession, interviewed by Steve Savant, a financial columnist.
No matter which approach your parents ultimately choose, it is important to anticipate possible problems and be prepared for a number of bumps along the way. If your father decides to pass the family business on to you, your siblings might feel slighted, and you could face years of difficult relationships as a result. If your father decides to sell the business, the split of the proceeds could become an issue, either now or in the future when the estate is settled.
The problem with selling or passing on a family business is that the decision encompasses much more than finances. Now matter how hard your father tries to separate business from family, there is simply no way to avoid emotional responses altogether.
If you and your siblings grew up in the family business, you all probably have memories – both good and bad – of those earlier days. Whether it was opening the store by yourself for the first time, manning the cash registers or stocking the shelves, you have poured your emotions and your hard work into the firm. When your father decides to sell, it can feel like those memories are being ripped away, especially if the business is being sold to a stranger.
Even if the business is going to a family member, it can feel like a real sea change. All family members need to acknowledge the significant changes taking place – both financial and emotional. Ignoring emotional reactions to the sale of a business is just as risky and unwise as ignoring the financial aspects of the deal.
One of the best ways to address the family dynamic situation is to face it head on. Instead of trying to hide from the problem and pretend it does not exist, business owners on the cusp of retirement can meet with the entire family and discuss their future plans. If your father has not yet suggested such a meeting, you may want to subtly suggest one. Modern technologies like Skype allow the entire family to get together, no matter where everyone is located.
Even if a family meeting has been scheduled, you and your siblings may want to have an informal get together ahead of time. If you and your siblings were intimately involved in the running of the business growing up, you probably have some ideas about what should come next. You need to talk about those ideas so you can make suggestive decisions when the meeting with the whole family takes place.
The best you can hope for is that all your siblings agree what is best for the business now that dad is retiring. In many family businesses, the patriarch will have actively groomed one of the children to take over. In those cases, the future of the business is pretty apparent. If that is not true in your case, an open and honest discussion with your brothers and sisters is critical. Deciding among yourselves who wants to run the business and who just wants out is very important. You do not want to turn what should be a happy occasion – the retirement of your father – into a big family drama.
Once you and your brothers and sisters have agreed on a future direction for the business, it is important to share that collective decision when meeting with your parents. Open and honest sharing is essential, both now and in the future. If the business is to remain in family hands, cooperation between siblings will help it run better and keep it staffed through vacations and unforeseen circumstances. If the business is to be sold and become part of the estate, having the siblings agree on the distribution now will help mom and dad rest easier at night.
Keep in mind that the final decision belongs to your dad. No matter what you and your siblings would prefer, it is your dad who built the business, and he needs to decide what is best for its future. It can be hard to put emotion aside in such a difficult situation, but it is very important.
No matter what decision is ultimately made, getting outside help is always a smart idea. An independent business broker can be a great help in not only valuing the family business but working out the details of the sale. An experienced business attorney will be able to help your dad distribute the business fairly, make sure the children get what is coming to them and soothe any hurt feelings among the family members. If your father has not engaged an independent broker and an attorney, you and your siblings can make the suggestion as the sale process moves forward.
There is a lot of great help available on the Internet, with various online business-for-sale platforms and self-service solutions. No matter what the nature of the family business, your dad has spent a lifetime building it and watching it grow. Now that retirement has finally come, your dad needs to use just as much care to make sure it ends up in the right hands.
Related: Selling a Family-owned Business