Transitioning power in any business can be a challenging process, but when you throw your kids into the mix, it can become even more complicated. The stakes are indeed high when you’re looking to pass on the family business – largely due to the fact that your decisions don’t only impact your family – they impact the families of your employees as well.
Navigating these waters can be complex, but by doing your due diligence up front, you can save a lot of headaches and create a great deal of security for those around you. In this blog post, we’ll take a look at some of the things you can do to ensure that the transition of ownership to your children in a family business is as smooth as possible.
Have the courage to understand that the power lies with you to make decisions of who to leave inheritance to.
The old saying goes ‘think like a family, act like a business.’ Family decisions are often made on the premise that the end result ends up in everyone’s collective best interests. It should be no different here.
The difficulty with family and a family businesses is that they’re two systems that A.) overlap and; B.) Greatly impact one another. The dynamic can be severely frayed when one child learns he may have to listen to the other and vice-versa. Remember not to let your children’s emotions dictate too much of the decision making process. After all, you’re juggling the livelihood of more than just your family. Give deep consideration to what’s in the best interests of everyone. You’re the one with the power.
Create governance rules long before you’re ready to exit the business – who’s in, who’s out, what they do.
The overwhelming majority of inheritance disputes arise from situations where wishes are not clearly communicated by the deceased. Just like your personal estate, having a plan that’s well defined and specific is important in transitioning a business to your children.
Asking questions like:
- “Who will run the business?”
- “How will ownership be divided up?”
- “Who makes decisions? What kinds of decisions can they make?”
- “Will one sibling have power over another?
…are all essential questions to ask. Be clear, be direct and worry more about making the right decision, not the fair decision. Once you’ve made it – write it down and make sure the instructions and guidelines are crystal clear.
Try to avoid giving ownership to siblings who are not in the business – if at all possible. If that isn’t an option, then limit their power to make management decisions.
The biggest mistake a business owner can make is leaving his or her business to a disinterested or disengaged child. Part of owning a businesses is owning the responsibility of decisions that impact the people you employ. Whoever owns the business should be prepared for and capable of taking on that responsibility.
However, in some cases, none of the children are interested or engaged with the business. Sometimes, you have no choice. If you find yourself in that kind of a situation, it’s important to be precise in how you approach your decision. Give your child stock and partial ownership – but make sure it’s non-voting stock. That way, they can’t impact management decisions, thus protecting your child and your employees.
Have family meetings to talk about these things openly early on. Don’t be afraid to bring in a professional for advice.
The best way to prevent any dispute from happening is honest, continuous dialogue and conversation with your children. Before transitioning is even on the radar – you should be thinking about who might be best fit to run the business, who might be most interested, capable, etc. Having those honest exchanges with your kids can help answer those questions and make decisions easier heading forward.
If you’re really stuck, then it makes sense to call in a professional for advice. They may have options you’ve yet to consider – some inside and some outside the proverbial box. The cost of bringing in an adviser is peanuts compared to the emotional drain and struggle that awaits your children if you fail to take action. You may not need an adviser, but if you’re stuck, it’s a great investment.