What’s Your Greatest Legacy? Hint: It’s Not Your Family Business
I was playing my regular Saturday morning squash game and had my friend two games to zero. I was only three points away from taking the match in a clean three-game sweep. But something happened. I started to drift and lose focus. To make a long story short, I flamed out and went down three games to two. The sting of defeat is always more acute when you’ve already begun to celebrate before victory is earned.
On the drive home I wondered how many business founders have always imagined that the surest succession plan – the sale of the business to their own children – is a slam-dunk, only to find out too late that their children love their jobs but hate risking capital.
The plan is to talk later
I also wondered how many business owners never really know how to broach the subject of selling the business to their kids. The issue feels so emotionally complex and dangerous; the best plan is to plan to have the conversation…later. Many business owners in my audiences express to me the sentiment that if their kids were “real” business owners they would make the first move and raise the subject of a buy out. Similarly, kids will say “hey, I’m waiting for the big guy to make the first move.”
I wondered how many families feel the sting of defeat, never experiencing what could have been a great transition because no one knew how to start what is perhaps the most important conversation of a business owner’s life.
The blunt truth is that too often owners never have the conversation. Life unfolds, and parents who are controlling shareholders become incapacitated and die. And then their family discovers that the owner has done what feels so utterly right: he or she has treated their children “fairly” and proceeded to gift, via the owner’s will, an equal number of shares to each child, irrespective of whether the children are working in the business or not.
What unfolds next is unpredictable and often wealth destroying. Children working in the family business can find themselves reporting to their brothers and sisters outside the business. And too often children outside the business are disappointed with the dividend stream and clamor for more. Many children on the outside looking in assume that their siblings working in the business are overpaid – not because they know this to be true, but because they find themselves awash with emotion about what the business is, what it was and where it ought to go.
Exceptional advisors force awkward conversations
Advisors can play a hugely influential role in sparking the right conversation among the family about the sale of the business – when everyone is still healthy and thinking clearly. When the answer emerges that there is a buyer in the house, what a magnificent event for the family to celebrate: an orderly transition. This natural trimming of the family tree forces ownership into one branch of the family – ownership by someone taking risks, with real skin in the game, just like the founder had so many years ago.
But if the answer emerges that the children rather like their jobs but are not interested in risking their capital, then the parent can get on with the job of selling the business outside the family. At least everyone has exercised control over his or her own future. Junior can hardly blame his parents for selling a business that he’s taken a pass on buying. I haven’t met too many business owners who can afford to gamble the retained earnings in their business on the idea that a son or daughter who doesn’t want to buy the business will run it profitably throughout the owner’s long retirement – a retirement that will likely be longer and more expensive than most imagine.
Find the end before the end finds you
When you’re up two games and business is going great, don’t forget why you started your business in the first place. It was to make money. Do your last deal by finding the end of your business before the end finds you. And when you do, celebrate the fact that the best is yet to come and that it has everything and nothing to do with you. Your legacy was never your business – it’s your family. So focus on making things right for the people you care about. That’s how founders who are mothers and fathers are measured and remembered.
If gifting money to your children, instead of gifting your business, feels problematic, think about why that is.