Many of my clients have spent decades building businesses right alongside raising families. They’re entrepreneurs, and I love that about them.
For as much calculating thought as they put into running successful businesses, many have never put any into who’s going to run the place after they are gone – whether by retirement or death.
They haven’t asked themselves how much money they might need in order to exit the business (retire) or under what terms they would transfer the business (sell). If they plan to sell, will the buyer be a relative, an employee or someone outside the picture?
It behooves me to help entrepreneurs realize the critical importance of proper succession planning.
“I Thought Junior Would Take Over”
Many mistakenly fall into a common trap of assuming one of their children will step in and carry on the family business. But let’s face it; sometimes our kids think our jobs are boring and want no part of it.
I know an optometrist, David, who wants to retire soon and regularly prods his adult daughter to take over managing his successful practice of three offices. He wants to hire another eye doctor to serve his patients and to receive income from the business during his retirement.
However, his daughter has never expressed any interest in running the business. She’s got a graduate degree in literature and enjoys teaching. Eventually, David, who is in his early 70s, will have to stop working. He’ll be forced to sell his practice for less than it’s worth or shut it down and miss out on any retirement income because he didn’t do any reasonable succession planning.
Nobody Wants a Family Feud
On the flip side, more than one child might want to take over a client’s business and a the conflict could tear the family apart.
For example: Tim ran a successful manufacturing company that makes pneumatic tubes. After he died, he left the business to his wife, Sue, with a small percentage of shares also left to each of their three children.
Sue is ready to retire. Their oldest child, Rick, has worked in the business since college and managed it alongside his mother since Tim’s death. Rick wants to buy out his two sisters to run the factory on his own. While she’s never managed any part of the business, his sister Kelly decided she wants the same thing. Unfortunately, they have no desire to run it together and Kelly refuses to sell her shares for less than a grossly inflated price.
Sue wants to keep the business in the family but has been unable to broker a decision that either side sees as fair. A legal battle is looming.
Don’t Put It Off, Do It Now
In the two examples I’ve shared, we have a father who is putting off succession planning to his own financial detriment and a mother too afraid of hurting anybody’s feelings to make a decision that’s best for the business.
Both situations could have been avoided through proper planning. I encourage you to make some decisions about what you want to happen to your businesses after you are gone. Consider what might happen if you don’t start to make some choices now.
As always, I hope this article has helped you and your families. If there is a specific case or concern you’d like to discuss, please contact our office.
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