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Business Observer Friday, Sep. 6, 2013 7 years ago

Leave your business, not a dispute

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When leaving your business to your children, have a plan that protects your company and its employees — not just your kids' feelings.
by: Denise Federer Bottom-line Behavior

Transitioning power in any business can be a challenging process, but when succession planning involves your children, it can become even more complicated. The stakes are indeed high when you're looking to pass on the family business — largely due to the fact that your decisions don't only impact your family — they impact the families of your employees as well.

Navigating these waters can be complex, but by doing your due diligence up front, you can save a lot of headaches and create a great deal of security for those around you. There are several critical steps you can take to ensure that the transition of ownership to your children in a family business is as smooth as possible. Take some time to consider the following suggestions.

Have the courage to understand that the power lies with you to make decisions of whom receives what inheritance.
I regularly say to my family business clients: “Run like a business, feel like a family.” Too often I have seen strong family business leaders falter when it comes to being objective with their children and treating them as they would any other employee. Family decisions are usually made on the premise that the result ends up in everyone's collective best interests. It should be no different when deciding the future of your company. The primary difference is that your decisions have the potential to impact many people beyond your family.

A family business represents two distinct systems (family and business) that not only overlap but greatly impact one another. As a parent it's natural to want to make your children happy and allow them opportunities in the company that they may not have earned. However these decisions often result in feelings of resentment and entitlement amongst family and non-family members, leading to tension both in the office as well as at family celebrations.

Remember not to let your children's emotions dictate too much of the decision making process. After all, you're juggling the livelihood of more than just your family. Give deep consideration to what's in the best interests of everyone in the business. You're the one with the power.

Create governance rules long before you're ready to exit the business — who's in, who's out, what they do.
The overwhelming majority of inheritance disputes arise from situations where wishes are not clearly communicated by the deceased. Just like your personal estate, having a plan that's well defined and specific is important in transitioning a business to your children.
Ask questions like:

  • Who will run the business?
  • How will ownership be divided?
  • Who makes decisions? What kinds of decisions can they make?
  • Will siblings be autonomous in their roles, or will one have more authority than the other?

    These questions are all essential to ask. Be clear, be direct and worry more about making the right business decision, not the fair family decision. Once you've made it, write it down and make sure the instructions and guidelines are crystal clear. You can focus on making things fair in the family through other means.

    Try to avoid giving ownership to siblings who are not in the business, if at all possible. If that isn't an option, then limit their power to make management decisions.
    The biggest mistake a parent can make is leaving his or her business to a disinterested or disengaged child. Part of owning a business is owning the responsibility of decisions that impact the people you employ. Whoever inherits the business should be prepared for and capable of taking on that responsibility. Leaving children not in the business other assets is healthier for both the business and family relationships.

    However, if that is not a practical solution, it's important to be precise in how you approach your decision. Get legal and financial advice that minimizes the impact of children not engaged in the business on management decisions, thus protecting your children's relationship and your employees.

    Have family meetings to talk about these things openly early on. Don't be afraid to bring in a professional for advice.
    The best way to prevent any dispute from happening is honest, continuous dialogue and conversation with your children. Before transitioning is even on the radar — you should be thinking about who might be the best fit to run the business, who might be most interested, capable, etc. Having those honest exchanges with your kids can help answer those questions and make decisions easier heading forward.

    If you're really stuck, then it makes sense to call in a professional for advice. They may have options you've yet to consider. The cost of bringing in an adviser is minimal compared to the emotional drain and struggle that awaits your children if you fail to take action. You may not need an adviser, but if you're stuck, it's a great investment.

    Denise P. Federer, Ph.D. is founder and principal of Federer Performance Management Group. She has 27 years of experience working with key executives, business leaders and Fortune 500 companies as a behavioral psychologist, consultant, coach and trainer. Contact her at:
    [email protected]

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