Selling the family business is a difficult decision. Talking about it with the family can be even more so. There are a number of implications to consider when it comes to this big decision. In part two of our SELLING A SMALL BUSINESS Series, we concentrate on the family dynamics. Very often, the family business has played a big part in the lives of most of the family members – some obviously more than others. Micheal Burch and Ron Prehogan provide a bit of guidance on how to navigate the essential discussions with your family.
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Ron Prehogan, President of Equitas Consultants Inc., is a legal expert and certified family business facilitator. Besides his law practice, which focuses on commercial transactions including mergers, acquisitions, and the sale of business properties, Ron provides consulting services to family businesses focusing on succession planning, communications, governance and mediation services.
To start, how much should mom and dad share about the potential sale and when should they start sharing?
The more the kids are involved in the business the more important it is to discuss the plans with the kids sooner than later. For example, will there be a role for them in the business after the sale? If so, likely for how long? If not, what is their next gig?
If you think of your family members as partners in the business, you will have the most success that way. For family members not in the business, it is still important to communicate, but know that there is not the same impact for them.
Do you work with the parents to develop a strategy to share this big news?
Yes I do, but I am most effective when I get involved even before the decision is made to sell the business. I get involved both as an advisor to help fashion a strategy for communicating with the family and as a facilitator of family discussions.
In one case, I worked with a mother who owned the business and her son who was involved in the business. She was dependent on the business to fund her retirement and he believed that he could take over the business, build it and more than adequately fund her retirement. I facilitated a series of discussions with the mother and son over time which ultimately led to her deciding to sell the business to a third party.
This open communication was key in preserving family relations. They had the conversations, the son was part of the process and felt respected and heard. The son is working on his next business venture while the mother is secure in her retirement.
How do you determine if Mom and Dad are able to let go? Is it different if the next generation is taking over?
I sometimes have to help paint a picture for Mom and Dad of what life will be like after the business is sold so that there are no surprises down the road.
I find that the biggest difficulties letting go lie in situations where the owners devote their lives 24/7 to the business, make all the tough decisions without bringing others along and have few outside interests.
There can also be issues between spouses when all of a sudden the business owner is spending time at home like never before.
The problems associated with the difficulty of letting go can become more acute when the next generation takes over the business. The parent might be bored with life post-transition or might not like the way the next generation is running the business and decides to take it over which may or may not be good for the business but never good for the family!
What has been your experience when they are asked to stay on board to assist? Is that generally difficult when you as the owner have been calling the shots for so long?
Yes, it is often difficult for the owner to stay after the sale in much the same way that it is difficult for people selling their homes to visit later on when many parts of the house have been changed.
If the buyer insists on the seller staying on after the sale for transition purposes, that’s fine but it is important to limit the stay and then leave as soon as possible. Usually that is what works best both for the seller and the buyer including members of the next generation.
The healthiest of scenarios is where the next generation wants the parents to stay on to provide advice and have a place to “hang their hats”. The next generation benefits from sage advice and the senior generation feels respected and valued in making a continuing ongoing contribution to the business and to the family. Truly a win-win!
I presume this transition phase in life presents a good opportunity to develop the estate plan and share with the kids?
Whenever a business is sold, it is critical to have tax and estate planning advisors involved from the outset to structure the transaction in the most tax-efficient manner. This is also often a great opportunity to discuss estate planning and succession planning with the whole family.
If the plan is to leave liquid assets equally among the children, there is no problem but often that is not the case with family business owners. What seems fair to the parents might not be received the same way by one or more of the children. If that is the case, it is important for the parents to clearly communicate the plan. Initially, that might not be received well by one or more of the children but better to address the issue now than having them find out after the parents are gone. That is when family bitterness, discord and litigation ensue which is the worst of all possible worlds for the family.
What is your experience when the parents have left one or two children in charge? Does that work out?
Yes it can but again it’s all about proper communications within the family. No surprises down the road!
Do you work with the families to create a path to transition that takes all the family member’s needs into consideration?
Yes I do and as mentioned earlier the more difficult it is for family members to talk about these issues the more I tend to get involved and the more effective my role is. In real estate, the key to success is “location, location, location”. In business families, it’s “communication, communication, communication”.
View the entire selling a business series here