Family Matters

Business owners often agonize about family succession issues. They have a natural desire to give their children a head start in life. They want to let their children pick up at the summit of what they themselves have accomplished.

There is no more natural desire for a parent. However, beware the pitfalls.

· Second-generation business people often do not have the talent or skill to pick up in the next stage of the business evolution. It is very difficult to build entrepreneurial instincts into a child growing up as son or daughter of the boss. If children don’t have the raw capability, you will harm both their psyche and their inheritance by putting them in a position to ultimately fail.

· As you plan for business ownership transition, keep in mind that kids working in the business view things quite differently from kids outside of the business. Family ownership can be an enormous source of sibling conflict. The kids in the business with think, “I helped to build this business. I was toiling away

for all these years, and I have earned a greater reward than my siblings outside.” The kids not in the business, in response, will think, “You had a job given to you for all of those years. You got the company car and the benefits. I, on the other hand, had to make my own way in the world. You have had disproportion-ate advantages.”

· If you it’s complicated to contemplate sale with one set of family members, that’s a day in the park in comparison to the third or later generations, with multiple family units involved. If you have more than one family member involved, and there are likely to be multiple kids as heirs, develop a mechanism now to shift control to one or two key operators. Do not leave it to be decided and agreed upon by those increasingly diverse next-generation beneficiaries.

We did some expert-witness testimony for a family where three siblings worked in the business, and several third-generation kids were employed by the company as well. As the years passed, the family segmented into two factions, dramatically at odds. One wanted to sell and one did not. The non-sellers obstructed sale in every way possible. The bitterness and unreasonableness on the part of both sides was unbelievable.

The matter finally went to court, and a judge ruled that sale was the only possible option. Unfortunately however, that judgment was late in coming. By that time, the owners of the company had diminished its value to about one-third of its former glory. In the meantime, multiple lawsuits had been filed, a five-generation family vacation property (owned by all) had been sold in a fit of rage by the managing trustee, and a competitive business had been formed by two of the third-generation kids. The family relationship was destroyed, and the value of the business with it.

Family ownership transition is risky business. Think twice about your priorities before you gift or “sell” to a child, and think ten times before you sell to more than one.

Deborah Douglas -
Author ‘Cashing In! Selling Your Company for Maximum Price'

www.DouglasGroup.net