COURTESY / LEBEL HARRIMAN LLP
Philip Harriman is a partner at Lebel & Harriman LLP in Falmouth.
September 3, 2020
How to get a family businesses ready for the next generation
By Philip Harriman, Lebel & Harriman LLP
After working with hundreds of family businesses helping them prepare for the next generation, or new owners from outside the family, I have observed some common traits present regardless of their size, geography or market sector.
Combine this with the fact that 10,000 people every day wake up to their 65th birthday — a phenomenon that will continue to unfold for another decade. So whether you are a seller or a buyer, if you are part of a family business you are not alone trying to implement a seamless transition.
What happens between the decision to sell and the transition to another family member running the business requires patience, and an advisor who can guide you through the emotional impasse. It’s common for a new client to show me a file of unsigned legal papers and financial projections, not to mention professional fees paid along the way. This can leave a sour taste in the owner’s mouth and emotional tension from this unsuccessful attempt to transfer the family business.
What I have learned working with hundreds of family businesses is that no one wants to spend a career building a business only to see it fall apart in the end. And whenever there is family, business, money and emotion in the same room at the same time it can be volatile if everyone is not invited to be engaged. Most especially, unless everyone with a stake in the outcome has been heard and understood before the succession formalities unfold little is accomplished and sometimes it even ignites family strife that gets passed on to the next generation. There is a different approach.
I call it the alignment of your head, heart, and stomach. In my experience this process should be first and legal and tax matters should follow.
Many times, these are reversed, forcing family members to weave emotion and finances together while unresolved or answered questions linger. This is a clear warning flare that should be addressed because it will surface at the worst time. And do not forget about the “night shift,” the family members who are not directly in the business yet live with the one who is involved. She/he has opinions and observations that matter too. Ignore those “night shift” conversations and you can expect heart and stomach aches ahead.
Consider this if you are ready to pass the torch to the next generation, start with the end in mind and work backwards to today. Make sure they truly want this opportunity, that they are happy and content taking this challenge on.
I have worked with many next generations who like the income, yet personally are unfulfilled because their work leaves them empty. No parent wants to see their adult children feeling trapped because they followed what was expected, better to have an experienced advisor help sort out the individual agendas, someone who will take the time to meet understand what matters most to each of them, so they can share their view of the future of the business and where they fit if at all. And the advisor should possess the emotional intelligence to identify and confidentially address stress points, hidden agendas or elephants in the room.
With these influential emotions known and then ideas and strategies built around combined with optimal legal and tax strategies, positive and family enhancing outcomes can be the legacy, something every parent wants to leave behind. When these steps are taken and the results meet the needs of the head, heart and stomach, my experience proves that the outcome is what’s best for the family.
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