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Family transition and succession planning are two of the hottest topics facing business owners today. Many are in the 50s and 60s and are looking for a way out.
FAMILY BUSINESS TRANSITIONS & SUCCESSION A number of business transitions are from parents to children, where a generational divide often causes interesting and diverse challenges. Family friction, for example, can take a huge toll on both the business and the family itself. But succession is about trusted leadership and a transfer of values, talent, and vision. Financial security is also very important, especially for parents nearing retirement, and requires a generational shift in roles and responsibilities to ensure financial freedom. This shift is seldom easy for a variety of reasons:

  • Is there an unwillingness of the older generation to let go?
  • Is there a question about the core competence of the next generation?
  • Is there unspoken family friction that is getting in the way of civility and orderly conduct?
  • Is there a question of the economics of financial sharing when one child works in the business and the other does not?
NO FAMILY? Even those businesses devoid of family members have the same structural challenges. Owners who have dedicated three or four decades of their lives to building a business need a practical exit strategy which may not be so apparent. Owners often think their business is worth much more than an unbiased valuation will indicate. And there are other issues to consider:

  • Who might be interested in buying the business?
  • Will they continue to serve the community in the fashion you have?
  • Will someone be able to purchase the business with money being tight and banks not lending?
  • Would simply closing down and selling off inventory be a better and more practical financial alternative?
THE VALUE OF OUTSIDE COUNSEL These and other significant questions lead to the recommendation of retaining outside counsel from a trusted friend or confidant, someone who specializes in the field and has experience assisting in this process. Dealing with family issues in business can be particularly thorny, so having independent, objective, unbiased advice is always helpful. Parents, in particular, need to walk a fine line between loving their children and doing what is best for their business and their retirement needs, and this is never easy.
DEFINING GOALS One of the first things an outside professional will do is assess the fundamental goals of the owner(s) and begin to define what a successful outcome will look like. There are many considerations:

  • Do the owners want to maintain the name of the business in their community or industry?
  • If children are involved, has there been an implied promise to the next generation that they will take over?
  • Is there mutual respect amongst the generations and a willingness to work together in an orderly transition?
  • Are there unresolvable family differences or a lack of risk tolerance for ownership change?
HOPE IS NOT A GOOD STRATEGY Many parents hope their children will fall in love with their business and their industry and carry things on in the same manner they have. Sometimes that happens, but often children have a very different view of the business and also how to transition it into their own generation. And often they are right to make changes that seem very awkward to an older generation. Millennials, in particular, watched their parents work six days a week and sacrifice endlessly for the business, and they simply can’t see that for themselves. They want a more balanced life and believe they can and should have it. For either generation just to hope and pray that things work out is a recipe for disaster.
WHAT IS NEEDED? What is needed in a family transition and succession plan is a proper attitude amongst all parties, demonstrated competence and values in running the business, the ability to build relationships and transition a team of people, and the ability to effectively lead and manage the business. Parents need to be honest with children because children deserve to know if and when they can “get in the game.” But children also need to prove that they are capable, and not just taking over a business because their name is on the letterhead or the front door.
THE BOTTOM LINE A succession plan – whether with family, employees, or even an outside buyer – is a framework for direction with targeted achievements and benchmarks to hit for owners and those taking over a business, who may have a buy-out provision or other arrangement. The plan often covers a period of a few years, but without necessarily a specific end date. That comes when the goals have been met and all the parties are prepared and ready for full transition.

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–Board of Managers
AGS Laboratories