“Family is not an important thing. It’s everything.” –Michael J. Fox
Your family has a big influence on your business, whether you work with your relatives or not. Your business is likely your largest financial asset, and as such, the success and potential sale of your business impacts each member of your immediate family. Today is National Take Your Children to Work Day. According to our 2021 New York State of Owner Readiness Report, 58% of business owners reported their business was 100% family-owned. As a family business owner, having serious conversations about the future of your business is paramount for its success.
Time for a Family Meeting
About half of business owners want to transfer their business to a child but only 30% do so. Families are not without their conflicts, especially in family businesses. 32% of family businesses surveyed by PWC in 2012 were apprehensive about the transfer of the business to the next generation and 9% saw the possibility of family conflict as the cause of this apprehension.
This apprehension leads to succession plans being pushed aside for as long as possible. While an owner might know they want one of their children to take over the family business after they retire, they have no set plan for how to transition their business to the second generation. Failing to plan has led to 47% of family business owners who would like to retire in the next five years not having a successor.
By having annual family meetings to discuss the possible succession plans for the company, as an owner, you will be more prepared for an exit when the time comes. During these family meetings, any members of the family working in the business will have the opportunity to have their business suggestions heard. Those not working in the business will gain a deeper understanding of the inner workings of the business as well.
Do They Want the Business?
Managing a Family Owned Business involves navigating business decisions as well as family relationships. As a family business owner, you might think that you do not need a detailed exit plan. After all, exit plans are for people who do not know who will be taking over their business – you know you are giving the business to your daughter. The problem is, without a detailed succession plan, you are setting your daughter up to fail in a business that has not maximized its value prior to transition. Not to mention the fact that your daughter might not want to be the successor of the family business.
As a family business owner, have you actually asked your successor if they are interested in taking over the family business? Did you simply assume that your dream of transitioning the business to your child would align with their own? Without having tough conversations about the future of their business, family business owners will fail to have a detailed succession plan in place. Your children are not “giving up their dream” but if you fail to ask them about their dreams, you could end up losing yours.
Using the annual family meetings as a starting point for conversation will eliminate any confusion surrounding your children’s desire to take over the family business.
Can Your Child Afford to Buy Your Business?
Say your child does want to take over the family business once you exit. Can they afford to purchase it? As Chris Snider writes in Walking To Destiny, one thing all exiting owners must consider about a family business transition is the possibility that the buyer lacks the liquid funds to purchase the business outright. This can cause the owner to be locked in the business for longer than they initially expected as the child pays the purchase price over time. Conversely, if the owner is eager to exit they may sell to a relative for a lower price than they would have liked. According to research from our 2021 New York State of Owner Readiness Report, 33% of those surveyed received their business from family and 6% purchased the business from their family.
Even if the child can afford to purchase the business outright, are they qualified to run the business? Many family business owners face a common struggle when selecting a successor. Do I choose to keep the business in the family, even though the next generation is not qualified? Or do I choose a successor outside of the family and fail to continue the family legacy?
The Family Business Advisor
As a business owner, your family business advisor is a crucial member of your transition advisory team. They assist in managing collisions between the family and business dynamics. Selling the largest asset impacts the family. According to research presented by the Telos Group during our CEPA Online credentialing program, 95% of children who inherit a family business after both their parents pass will choose to leave the advisor who worked with their parents. This is a concerning statistic as it highlights the necessity for advisors to include the children in the family business discussions early on.
Learn more from our community of Family Business Experts here.
