When The Apple Falls Far From The Tree

What if your kids don’t want to take over your business? That’s a bummer. Succession planning is often much easier if the transition is to adult children who are already in the business and want to run it, own it and serve in some leadership role for some period of time.

If they don’t want to run or own it, you have a tough decision to make.

The next easiest option would be to sell to one or more key employees who want to own the company. You could do this through an ESOP (employee stock ownership plan), which makes every employee an owner, but there is a lot to consider with an ESOP, and it still requires a strong leader who can run the business profitably and sustainably. More often I see sales to competent leadership-level employees who are interested in buying the business.

The problem with selling to family members or key employees is the financing. The vice president of a $15 million company isn’t sitting on a wad of cash ready to invest in your business. And getting a bank loan of that magnitude is tough.

In most cases, you will have to finance the sale. Doing this will build an opportunity for your successor — the new owner(s) — to run the business while you are still engaged. And you’ll likely want to be engaged, since you’ll still own a good piece of it for years.

The plus side of this arrangement is that the installment payments fund your retirement and give you the flexibility and freedom you want in your life. The negative side is that you are an owner for a long time, and your liquidity event is really a series of payments over time. If the business succeeds profitably, you get paid. If the business suffers, your payments may go toward the survival of the business, and you may find yourself coming back in to re-right the ship or find a new buyer.

This makes it very important that you pick the right people to buy it in the first place. If they can’t run the company successfully and sustainably, there isn’t going to be a payout for you.

If you have no family member or key employee willing and able to buy and run the business, it may be time to seek out a third-party buyer. The wrinkle in this scenario is that it can be really hard to secure an outside buyer who’s willing to pay what you think the business is worth.

Selling to a strategic buyer is a cleaner transition. There is a liquidity event , then you move on with your life and they move on with your business. Oftentimes, this also can be more lucrative for you, too. But it’s hard and can be time consuming to find the right buyer.

While these options may seem daunting – and they likely are — the worst solution is for an uninterested adult child to feel obligated to take over the family business. It’s not good for your company, your wallet, your family or your legacy.

Start now — Find the right fit buyer for your business, and ensure the long term success of your company, your retirement funds, your family and your legacy.

Grooming The Next Generation

As you’ve built your business over the years or decades, your fondest dream has been that your children will one day take over to continue your legacy. Now you are ready to retire, but they’re far from ready to lead. Uh oh.

Is this really the right fit for your son or daughter? Do they really want to do it? Do you really want them to?

Without open and honest conversations, many families fall into the obligation game; children think they are expected to run the business when they grow up, whether they want to or not, and parents think they owe it to their children to pass it on.

But as you would expect, some adult children’s passion is anywhere but the family business. Those successors aren’t going to be ready to lead for a long time – their hearts just aren’t in it – or they aren’t a right fit.

And some parents realize deep down that their children would be better served over time in a different career than their own.

Assuming the children want to run it badly enough and you want them to run it badly enough, it’s time for another important conversation: the right role for the adult child, based on their strengths and experiences, and the complements that need to exist within the leadership team.

In some companies, the son or daughter is a great visionary and strategic thinker but doesn’t really have the skill sets to manage at a high level (cue the executive team). Or perhaps the adult child is a tremendous manager, but their ability to set the vision and strategy isn’t as strong.

You must figure out the right leadership role for this individual and the development they need to get there. This may include skill gaps that need to be filled in or experiences to put on their plates over the next few years to make sure they are ready.

Likewise, you will want to develop the rest of your management team for their ultimate roles so that the company will be profitable and sustained over time.

You may find that some highly driven and successful employees resent a succession plan that puts a family member they may perceive as less qualified in charge. Talk with them. Acknowledge that you realize they have strong skills and important experience to contribute, and there is a key role for them at the management team level, and you want them to be a part of the ongoing success of the business.

By acknowledging the critical role these employees play in the company’s success, and putting together a compensation package and meaningful work package that shows them they are valued, they are more likely to want to be a part of creating the future. If you create a set of expectations of how employees will work together and build the relationships across the team, you can create a powerful integrated team.

This won’t always work, and high performers may not stay. If your son or daughter is smart, they will replace them with team members who are even smarter than themselves.

It really gets complicated when you have multiple adult children in the business. Even if they all want to be part of the business, you still have the difficult job of discerning who is the right one (if any) to run the business and what roles the others should play. How can they be complementary to each other? How can you structure the ownership model to be fair, whether or not they are at the top?

A fatal flaw in family businesses can be their tendency to approach business decisions first in terms of what’s best for the family. Sacrificing the business’ success to appease complicated family dynamics isn’t good for your family members and it’s not good for business. If the company shuts down, everyone’s out of work, including non-family employees. That’s a lose-lose-lose.

When you can’t figure out how to pass on your company without harming your family or the business, it may be best to sell it to a strategic third party and allocate the return to your adult children. You may even be able to write a provision into the sale documents that allows them to continue to work there, as long as they perform against a set of expectations.

Have the courage to look through the dual lenses of doing right by your business and doing right by your family. It may take require fierce conversations. You may have to make very difficult decisions, and you may ruffle family member or employee feathers – but if you approach it with a long term view of what is truly best for all concerned, in most cases you can create a viable win-win path forward.

"Retirement is Terrific!" — Fact or Fiction?

More often than not, it’s fiction. A couple of years ago, I crossed paths with a gentleman who looked more and more haggard each time I saw him.

Formerly the president of an organization, he was forced into retirement several years earlier than he planned. Suddenly cast adrift, he was struggling with how to fill his free time productively. As I probed further, I found he was having difficulty sleeping, and his health was suffering.

He was flashing the neon signs of depression, and he wasn’t alone. According to a 2013 report released by the Institute of Economic Affairs (IEA), following an initial boost in health, retirement increases the risk of clinical depression by 40 percent.

The Harvard School of Public Health also concludes that alcoholism, depression and obesity increase significantly post-retirement for business owners when they do not have a plan for what will bring them meaning.

What about women? This transition typically isn’t as hard for women. They generally take on many personal and professional roles during their lives, and as a result, don’t define themselves as business owners the way many successful men do.

The role of CEO is lonely in general, but as these leaders move toward retirement, it’s particularly hard for them to talk about the uncertainty around the coming changes.

After retirement, social and professional networks take a back seat and retired owners find themselves more isolated, and without other interests or relationships drawing them forward. For some, this could show up as depression masking as escapist behavior, such as spending a lot of time working out or on sports; or alcohol or substance abuse; irritability or inappropriate anger; even reckless driving. For others it can look like withdrawal from family and friends and other activities that used to be enjoyable.

Yet many resist seeking help, viewing both depression and its treatment as signs of weakness. Therapy can be a great help but many baby boomer owners are not willing to consider it, preferring to try to work through it on their own. This CEO decided to speak to a pastor at his church, someone he had great respect for and deeply trusted. Through that relationship, he felt heard and supported and was guided toward a volunteer opportunity that was very compelling to him. It gave him a goal for getting healthy, a purpose for his life, and a way to contribute to the church. He looks and feels 20 years younger.

If you think that you or someone you know may be depressed, learn more at the National Institute of Mental Health or the National Alliance on Mental Illness.

Make Retirement Terrific by defining what will bring meaning and joy in your next phase of life. Contact us to learn more about our Executive Transition Process and create a Retirement that’s ‘Terrific’ for you!