Family businesses are truly a joy. You have quite a bit of control and flexibility, and you get to work together with the people you love the most, your family.
It is every business owner’s dream to pass the business on to the next generation, and my goal is to try to help them achieve that dream, if possible. Unfortunately, some family businesses simply should not go to the next generation. Yes, it can be sad. But trying to force a square peg into a round hole will only create a great deal of damage – relationships will get frayed, wealth can be negatively impacted, and lives can be wasted.
Here are a few indicators that you should consider selling the family business:
1 Your children don’t want the business. If you run a small retail shop that put your kids through college, the chances are they have their sights set on bigger goals when they graduate. The harder situation is when the company is big enough to warrant their joining the business, but they just aren’t interested. This can be painful when it happens.
There is nothing wrong with laying out the facts regarding the opportunity that the family business presents to them. But forcing the company on your children will only result in either resentment or poor performance.
2Your children are not capable. I have unfortunately had many clients where, despite their hopes and dreams, their child was really not cut out to run the family business. My task was to bring the owner around to that idea.
Sometimes there are circumstances where an outside leader can be brought in to run the business. But in that scenario, the question then becomes whether or not the kids can be good owner/managers.
3Ownership has become too diluted. Unless the company is always growing, it is hard to support a growing number of owners. This is true whether they work in the business or not, because the company winds up issuing dividends to those not in the business. Also, it could be a struggle to provide sufficient incomes to a large number of active owners. And there’s also the increased difficulty in managing the business among multiple owners.
4You receive an offer you can’t refuse. This was the situation with Anheuser-Busch, which was purchased by Belgian beverage giant InBev in 2008 for $52 billion. The offer was far beyond the realistic value of the business. And while the old guard tried to rationalize keeping the business, the current generation felt they would be foolish to turn down the offer.
Don’t try to convince yourself that you are keeping your company for your kids unless they understand the money involved, loudly declare their desire to run the business, and have a credible plan that makes financial sense.
5Members of the next generation don’t like working together. Maybe all your kids are capable, but they can’t seem to get along with each other. If they are not getting along now, it will only be worse once they are in business together. Rolling the business to them will impact your retirement plans, affect their lives, and possibly destroy any relationship they might have had.
6There are major changes in your industry. Market and technology changes can alter the business landscape such that it requires massive reinvestment to reposition the company. Sometimes, it is just not worth that investment. This is what happened to our family photography business, Olan Mills. People will always want a nice family portrait, but with everyone having a high-resolution camera on their cellphone, the demand virtually collapsed.
You worked hard to build the business up. It would be wonderful if you could successfully pass it on. But sometimes the difficult but smart decision is to sell the family business.
Henry Hutcheson is a speaker and author, and president of the consulting firm Family Business Carolina. Email your questions about family business to Henry@familybusinesscarolina.com
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