Someday, perhaps soon, your client will want to step down as the leader of the family business. If they are like many parents who lead a family business, they have probably always dreamed that one of their children would pick up the reins when they didn’t want to lead anymore.
Unfortunately, succession in a family business is not always as simple as these clients would hope. Taking the time to gather information from your client early in the Exit Planning Process will save your time and their money in the long run. Therefore, before your client hands the family business off to a child, there are eight questions that you should ask your client, to make sure they are ready to pass on their business to their child.
Is running a business the right choice for your next generation?
This first question is so important. Ask your client to reflect critically on their time in the business. Was it a happy part of their life? Is this type of work what they want to encourage their children to pursue? If your answer is yes, it’s time to have an open conversation with the next generation about running the family business.
What has this person the chosen successor said about running the family business before?
In their conversations with their child about the family business, what has the child said throughout their life about running the family business? If the child had always been disinterested and has suddenly changed their mind, explore that decision with them.
Make sure that the child does not feel obligated to take on this responsibility because this will only lead to more conflict in the long run.
Is Owner the right role?
As they talk to their child about the business, ask your client to figure out where the child would best fit into the business. Don’t assume that they will want to lead the business before talking to them about all their options. Many people want to take a back seat role, so they can focus more on their own family.
Are there other relatives who are more interested?
If the child is not interested in taking over as an owner, or is not interested in the business at all, that does not necessarily mean that your client must sell to a third party. Many nieces and nephews are fantastic at running the family business could also be a good candidate to take over the family business, and that power transition can be quite comfortable for some families. Don’t be afraid to think creatively about succession planning if your client insists on keeping the business within the family.
Does this person understand the values the business was founded on?
Often, conflicts within family businesses come when different generations have different ideas of what the business should value. For example, perhaps the older generation was more focused on the bottom line, and the younger generation is more interested in communication and customer engagement. Before your client passes on the family business, make sure they have a conversation with their child about the values that the business was founded on. If it’s important to keep those things values intact with the next owner, a different exit path may need to be explored.
If you set aside your view of what the business should be, could you see a way the business could grow under this person?
The new generation having a different view of how a business will succeed is not always a bad thing. Often, when there is a disconnect between generational values in a family business, it is because the younger generation has a better sense of what people need from the business today or have ideas for innovation that their parents just couldn’t see may not have ever thought of.
This is often difficult for a patriarch or matriarch to handle because they want to believe that the business will stay the same in their child’s hands. However, it is important to ask your client, “what could your child bring to this business if you got out of the way?”
How well will you work together during the transition?
Even if the generations agree on the values and direction of the business, the transition can still be difficult. We all know that the best leadership transitions are gradual, so with that in mind, how well can your client work with their child during the transition?
Will your business relationship jeopardize your personal relationship?
Running a business together and transitioning power from one generation to the next can often put a strain on personal relationships. Therefore, for this transition to be successful, both your client and their child need to be able to set aside their personal relationship during business hours and set aside business conversations at family gatherings. If they feel that they can do that, you are on the right track.
As you create an Exit Plan for your client, there are many things that you need to talk to your client about, but by far the most important thing you should remind your client of is: how their child feels about the business is not how they feel about their parent. If the child is interested in running the business, a parent can create a transition plan that works for everyone, and if they aren’t, that is alright too.
If you are interested in learning more about how to manage your clients’ Exit Plans and a process to ensure all their goals are met, check out our upcoming Exit Planning Boot Camp.