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Sale to Family Members

Every business and ownership group will change, but passing a family business to the next generation is a process fraught with challenges. Family business leaders face the difficult decisions of when, how and to whom to pass on the reins with the least harm to business and family.  Contrary to popular assumption this is not a process that happens naturally or without planning. The succession of family business to the second generation can leave people feeling uneasy, vulnerable and prone to conflict.  How will the transition occur, and what is the best timing.  It is hard for one generation to pass the leadership reins to the next generation. Here are some basic guidelines:

  • Articulate the changing dynamics. 
    As families grow, they inevitably become more complex. What once happened all under one roof in one generation can quickly span to multiple households. Growing up with different experiences often results in a group of individuals with a much wider set of interests, expectations, and behaviors. Coordinating these more diverse groups presents much different challenges. Seek to understand the changing players and dynamics by updating your family tree and analyzing the changes from the last transition period to today so you have better context for what your business, family, and owners need in the future. And once you understand those differences, name them explicitly and have several discussions with your family and owners to explore how those differences might affect the future.

  • Look outside the company for advice. 
    Engage with other business families to understand how they have managed their transition process. While their situation may be different from your own, getting insight into their approach and the reasons they chose their path can shed light on your own challenges and decisions. For example, how did they decide to transfer ownership to the next generation and why? Whose expertise did they seek in the process? How did they build alignment in both the current and future generations? Be open during these discussions, as they often introduce new perspectives that you haven’t previously considered. And seeing examples can often help build the courage you need to break tradition.

  • Be open-minded. 
    Respect tradition and understand why decisions were made in the past. But don’t get stuck in conversations that start with “but that’s how we’ve always done things here.” Instead, talk with your fellow owners about what you would do in the absence of tradition. Can you stay true to your past and simultaneously embrace new ideas? Can you chart a better path forward if you remove some preconceptions that no longer apply? In the end, tradition may guide you, but don’t let it be the primary reason for continuing down your succession path.

  • Don’t commit to succession decisions too early.
    The pride that comes with bringing the next generation into the business, and as a next generation family member honoring your family’s tradition, can lead some individuals to make their decision about succession too early. Committing prematurely as either a senior or junior generation family member can put undue pressure on the successors and alienate talented — maybe even more talented — family members. Instead, develop a plan and process that can evolve over time — one that takes into account new information as it is available and course corrects as needed. Put simply, make succession planning a topic that owners discuss regularly and continue to ask: “Do we have the right people in the right places working well together to make the right decisions with the right information for our ownership and family?”

  • Talk openly about plans for the future. 
    Succession planning is a process, not an event, and it equally affects the family, the business, the owners, and the communities where each of these groups operate. Engage with each — especially your next generation — during the succession planning process. Talk with them about the past, what worked well, and what was challenging. Share your aspirations and views on what an ideal future would look like. Acknowledge the traditions, the differences, the new innovations, and the personal aspects of succession. For example, while a current generation leader is able to unilaterally make most decisions about the business as controlling owner, perhaps the next generation would fare better with a governance process that delegates some decisions to an independent board and requires significant decisions to be approved by a majority of co-owners. The next generation may support this sequel or may have different ideas. Doing all of this will not only create a shared view of the future and drive commitment from both generations, but it will also provide the next generation with a roadmap for how to eventually transition to their own children.

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