This is the last of our series of four blogs on the Business Succession Planning in Families. This series involves Family Businesses. That business can be as small as a single Dry Cleaner operator or be as big as Getty Oil, Walmart or the Biltmore Estate.
We have discussed how each family has their own unique strengths and weaknesses. This was shown in the recent movie about J. Paul Getty, “All the Money in the World”, and in the TV series about the same family named “Trust”. We have also seen it on the HBO series “Succession”, which is about a Family Patriarch coming toward the end of his time and the struggles in the transition of that Business to the next Generation. [Succession: Getty and the Biltmore Estate]
We have discussed the probabilities of the success of a Family Business surviving to the next generation being low and how it might survive to the next Generation and possibly the next Generation beyond that. We have discussed Family Business legal structures and unique Estate Planning issues in Family Businesses. Every person is different which leads to dramatically different outcomes in a Family Business depending on the business and the strengths and weaknesses of each succeeding Family Members running the business. [The Family Business – Statistics, Structure and Unique Estate Planning Issues]
We discussed whether or not the Family Business Transition has been well planned for or planned for at all. Statistics tell us that a Business Owner spends more than nine hundred hours operating their business and less than four hours in planning its Transition. We discussed some of the issues regarding “exiting a business”, the sale of a business, competing businesses, and structuring the sale of a business. [Family Business Transition]
Where does all of this lead us?
Each family is unique. Just look at your own family, those of your neighbors, and those of your friends and acquaintances. Each individual is unique in their gifts and their weaknesses. Often the gifts of the Founder of the business are not the same strengths of other members of the family. You can see that in the operation of any business. You can also see it personally, when we look at adult children and spouses of people who are political leaders historically and here in the United States. The strengths and weaknesses of the original parent or spouse does not mean that you are going the have the same abilities in their spouse or children. If a parent has three (3) Adult Children, each of those children is going to be dramatically different in what their abilities are.
My dad use to say “Every person carries a sack of rocks. They just have different rocks in their sack.” Everybody has different strengths and weaknesses. If the strengths of the Adult Children are not the same as those of their parent, and often they are not going to be, the Transition of that Business to the next Generation may not work out well at all.(Only one-half of businesses survive through to the next generation.)
Selling the Business when it is at its highest and best value maybe the best way to get the “Biggest Bang for Buck” and obtain the most value for the business.
Heritage Piece, Entitlement & the Sale of the Business
Many times you will have one of the parents who believe that the Business should be “a Heritage or a Legacy piece”. That the Adult Child should have the opportunity to run the Business that the other parent started, even if they may run it into the ground, and leave it with little to no value. Especially when it could have been sold for a good profit, while the Founder was still operating the Business.
Often the Adult Child feels “Entitled” in that they believe that by “Birthright” they are “Entitled” to own that Business, when they had little to do with the building or the operating of that business.
The Personal Family Dynamics and Optics can really make the Transition of a Business difficult. All of these issues have to be taken into account for when the Founder of the Business is looking at Transitioning out of operating the Business, whether it is on a “day-to-day” basis, or totally.
The Founder may want to “outright” sell the Business on the open market when it is at its highest value. The Founder may want to sell it to the Employees of the Business who may have the ability to run and operate the Business.
I saw one successful Family Business where they were in the third generation of a large Textile Manufacturing business that remained successful. This is because the Founder’s Estate Plan was setup so that none of the Adult Children, or Grandchildren, or any Heirs, could work in the business. They could serve on the Board of Directors, but did not have the authority or the ability to operate the business. Specifically, they were barred from operating or working in the business. Outside Professionals were brought in to help run the Board of Directors and outside Professionals were brought in to do the strategic planning and run the business on a day to day basis.
Loss of the Founder
Some business do not run well without the founder. When Steve Jobs who founded, built and operated Apple, was fired by the Board of Directors, the business started to tank fairly quickly. Only when Steve Jobs was brought back in as the primary visionary and operator of the business were they able to “Right the Ship” and turn Apple back into a vastly successful business.
Each family has their own unique dynamics and characters. It is a “Balancing Act” in matching up these pieces to see if you can continue to make the business successful when it Transitions to the next owner, whether that owner is a family member or not.
At the Law Firm of Steven Andrew Jackson, Attorney and Counsellor at Law, we have helped hundreds of families protect themselves and their loved ones, avoid Estate Taxes and Probate Costs, and keep their Estate Plans current with the law through The Customized Protective Estate Planning Solution™.