No Succession Plan
The lack of a clear successor is another reason as to why business owners decide to sell. Either the children are not capable of running the business or are not interested in running the business going forward. A lot of the time the business was the father’s dream and he and his wife have been very successful in building and growing the business, but it doesn’t mean the same to the children, because it was not their dream. The business was always there when they were growing up and they tend to take the business and all the hard work that it took to build the business for granted. Not having a qualified successor is more common than one would think, and the wise business owner will recognize this and will begin the process to sell the business while they are still in control and can direct the destiny of the funds from the sale of the businesses.
With succession, you want to start early and often and talk to who you think is going to be the successor of the business and get them started early and actively involved. A recent client of mine said that his dad started him and his brother in the business when they were in high school working around the business and then would get them involved in making decisions in the business. My client said he was so upset with his dad for making him do a lot of crummy jobs and putting a lot of responsibility on him and his brother, but as he got older and the two brothers continued to work in the business and eventually grew it to a large successful operation he said they would have never been able to operate the multiple businesses they now own if they had not started at such a young age.
Plus, the fact that people and situations change. Parents often have the conversation with their children that they are going to take over the business after they mature and go to college, but after they have attended college, they changed, and the family business didn’t appeal to them anymore. Which is ok, but they forgot to share this fact with their parents who were still thinking the children were still interested in the family business. Even though the company is big enough to warrant their joining the business they are not interested, because of their new-found interest and desires from obtaining their college education. 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 resentment or poor performance or both.
When children can’t be successors. The reality of the matter is that not everyone is capable of running a business and just because they are your children doesn’t automatically make them capable to operate and manage a business. Sometimes it takes a lot of courage and mental fortitude to realize this, but it is reality. I have met many clients whose children, despite their parent’s hopes and dreams, were not cut out to run the family business. This is where the saying “Thunder, Blunder, Under” came from and it is when unqualified children are either forced into or allowed into the family business and they are not qualified to operate the business. By the way Thunder, Blunder, Under means the first generation made the business successful. The second generation floundered around and somehow kept the business together and the third generation took or let the business go under.
Family members dislike working together. Here again we need to apply the Theory of Reality. The reality of the fact is that 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. Turning the business over to them will impact your retirement plans, affect their lives, and possibly destroy the relationships they have between each other, which will definitely spill over onto the parents. And if this happens you can forget the big family gatherings at Thanksgiving and Christmas.
I have seen situations where there may be 4 siblings and only one works in the business and has taken over the operations of the business and does a great job but is constantly being criticized by their sibling for the way the business is being ran and they are all getting paid equally from the business, which leads to the sale of the business to get rid of the siblings’ criticism. Situations where the oldest son gets to run the business but doesn’t have the ability to be the president and the business loses millions of dollars a year, but no one says anything until there is nothing left to sell. Other times when the children were brought in to work in the business with their new spouses and both the children and spouses are working for the business and they get a divorce and the in law was the better operator of the two but had to go because of the divorce.
Point being succession planning is a serious issue and it takes a lot of courage to be able to recognize it and do something about it in a family setting.
To learn more about succession planning send me an email at Terry@TerryMonroe.com and mention SUCCESSION PLANNING and I will send you a FREE copy my book “Hidden Wealth” The Secret to Getting Top Dollar for Your Business which is affiliated with FORBESBOOKS and include your mailing address and I will have one sent to you.