All in the Family-owned Business

I recently attended a function held by the St. Louis Business Journal regarding family businesses and how they had transitioned to the second, third, and even fourth generations. It was a program of interest to me because so many HVAC and sheet metal businesses have traditionally been family-owned and have been passed from father to son. I was especially interested because I have seen many instances throughout the years where the transition from father to son has not gone as smoothly as had been anticipated. For many reasons, I have seen these healthy, successful family businesses fail during, or shortly after, the transition period.

Some of the issues I have seen that have complicated the transition period include the heir apparent never really wanted to take over the business but didn’t know how to tell dad; family members who are not involved in the business become highly interested if it is determined there is significant value to the company; and if a son or daughter gets married along the way, then his or her spouse brings a whole new set of thoughts and ideas for the business that may never have been considered. While those are just a few of the complicating circumstances that occur, I’m sure you can see how transitions can result in some serious headaches.

If we take the process to its beginning, the idea is to transition from one owner to the next while ensuring that the business continues to thrive and succeed. Most of us have worked all our lives building a successful business, and having that success continue for many years is our ultimate goal. Unfortunately, here in St. Louis, in just the last year or two, we have seen three major businesses — one an internationally recognized but still family-owned business — struggle through transitions. These problems have pitted brother against sister, brother against brother, and aunts and uncles against a group of family members. Fortunately, only one of the three businesses was forced to shut down, but the family strife and legal costs to the businesses are almost beyond calculation.

Our family situation has the potential for just such problems. Our daughter’s husband works for our company, and she is a school teacher with no direct company involvement. Meanwhile, we have a son out of state with a good job and no interest in the business. His wife has a part-time job, and there is little to no chance they would ever want to become involved in the business. So, what is the solution to our situation and others who find themselves standing in similar shoes?

Like so many things in business, I believe the major problem is lack of communication. While I don’t know the details of the three cases I mentioned above, I get the impression that there was very little communication between the family members about anything, much less the issues associated with business transfer. The problem is that, without prior communications, the main benefactors are the lawyers. I don’t believe any of us want to see lawyers get wealthy just because we didn’t want to discuss the obvious issue that was in our path.

What I have attempted to do is be very open with all of the family members involved, and, with their input, I have developed a real succession plan that is satisfactory to everyone. On the rare occasion where we can get the entire family together in one place, we make it a point to review what I, as the current owner, am anticipating to happen upon my inability to operate the company.

What I don’t want is for the family and/or business to be irreparably torn apart because of infighting that could occur during this transition of the business. The one thing I know for sure is that the only winners in those cases are the attorneys.

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As a result, I urge any of you who may be looking at such a transition, even if it is several years down the road, to begin having these discussions now as to how it is going to happen. In this case, it is never too early to be planning for the future.

Publication date: 11/6/2017

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