Part 1 in the Transitioning the Family Business series
If you have spent your career preparing to take over the family business, it can be frustrating to wait for the senior generation to decide that they are ready to retire. It also may be hard to understand why mom or dad chooses to keep putting in the long hours and would rather deal with the challenges of the business instead of retiring and enjoying life.
For the next generation, the waiting is even more difficult if your parents have not created a succession plan. This causes great uncertainty regarding the role each person should be preparing for and how a successor will be chosen if a parent passes away without a plan.
Sometimes the wait exists because the parents may still enjoy running the business. They likely are in no hurry to let go of a company to which they have devoted their lives. Or, parents may not wish to deal with the complex emotions, the fear of the unknown or the hard feelings associated with choosing successors. These issues and others can create barriers to planning for a transfer of the business to the next generation.
If you want to help your parents focus on succession, it is important to understand the issues behind their reluctance to do this planning and understand the strategies for addressing them (warning: it might take years). Below are some common issues that our succession planning attorneys, working with the family’s other professionals, help families overcome to begin preparing for ownership transition and creating a succession plan.
Coping With Reasons Why Parents Won’t Leave the Business
- They are uncertain about how they can be financially secure away from the business. This one is huge, and succession will not be addressed if this concern is present. However, many options exist to solve this problem, and your wealth advisors and your attorney can certainly help you find one that is right for your family.
- Common approaches include taking higher pay for a few years and saving it, selling a portion of the equity back to the business or to other family members, creating deferred compensation arrangements, or retaining assets to lease back to the operating business.
- Their identity is tied to the business.
- A parent may be able to identify a new role for themselves that is related to the business such as: Chair of the Board, consultant, informal advisor, trainer/mentor, representative to industry associations or other related groups, etc.
- Depending on interests and skill sets, a parent can develop a new role relating to a family foundation, family investments, family governance, next-generation education or a family office.
- They worry that their life will lack purpose without the business to run.
After they have devoted decades to building a business, it may be hard for them to see that they could have an important purpose elsewhere.
- Help them realize that as they transition the business to someone else, they can use their lifetime of experience to benefit others. Examples of new ventures could include starting a consulting firm, speaking on business or motivational topics, serving on boards of other companies or nonprofits, leading philanthropic organizations, teaching business classes at a college, working with local business associations or business startup programs, or coaching students in business/entrepreneur programs such as Junior Achievement or DECA.
- They believe successors are not ready to run the business.
Find out what their specific concerns are and take steps to alleviate these concerns.
- Seek opportunities to demonstrate the ability to succeed, including rotations through all functional areas of the company.
- Engage in learning and development such as an executive MBA program, leadership courses, mentorship plans, connections with other business leaders, and working with consultants or mentors from other businesses.
- They believe that they are irreplaceable.
Some of the strategies mentioned above can help with this concern too. However, this one may be difficult to address without outside help.
- Make sure the senior generation gets exposed to the skills and successes of next-generation family members and a well-functioning management team.
- Identify friends or business acquaintances who have successfully transitioned their business who might be helpful examples or resources.
- Consider meetings with former owners of multigenerational businesses now managed by the next generation. This could provide understanding of the issues they faced during the process and help gather best practices.
- They are avoiding hard feelings that will occur in the family when a successor is chosen.
This is where a good succession planning attorney or advisor can help your family design a plan that creates a win-win situation for the members of both generations.
- You may need to enlist additional help to move your parents to realize that if they want to ensure the continued success of the company after they are gone, they need to make decisions now that will make that happen. Help them see that it is bad for the business and for the family to have the children fighting for company control while working through their grief after a parent’s death.
- They equate retirement with a decline in health or even impending death.
Everyone has heard a story about someone who died soon after retirement, and even though this is rarely the case, some people still equate retirement with the end of an active, healthy life.
- If you have solved issues #2 and #3 above, this may cease to be a worry for them, since they will be plenty busy. But if this worry still exists, there are plenty of resources and professionals to help you work through this issue.
- They fear losing their prestige in the community (the business leader and/or the spouse).
- This is tough to deal with, although having the leader continue working in a new role in the business, foundation or family office – one that still provides opportunities for networking, speaking engagements and social visibility – could certainly help.
- Finding a board position or a leadership position in another organization, such as a nonprofit or industry organization, can also help with this.
If you are in a waiting situation that appears to have no end in sight, perhaps it is time to engage someone to help you have conversations about the future of the business. Our succession and estate planning attorneys can often facilitate these conversations and help families start planning for a successful business future. If you have questions related to succession planning or transferring the ownership or control of a family business, please contact your Warner attorney or contact Bruce Young at email@example.com or 616.752.2144.