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Segue Solutions | Family Business Transition Strategies

MARCH 11, 2014


The owner/founder (G1) of a profitable printing business is 75 years old...


He has two “children” (G2s) in the business – a son 52 and a daughter 50. The son came to the business immediately after high school and enjoys working on the production floor running or trouble-shooting the printing equipment.  The daughter joined the business at age thirty after graduating from college and starting a successful career in public accounting.  She enjoys sales, and the management of the office functions, and hopes to one-day run the business.  The father, although still “in-charge” had begun to drift in and out of the business, spending weeks at-a-time time in Florida in the winter, and the same in Wisconsin during the summer. 


Recently, the business has floundered, since its primary marketing efforts and production equipment are geared to printing checks and forms for commercial use.  The G2s proposed taking time to develop a new strategy utilizing their core competences to serve other markets.  However, the G1 countered that they were too busy for extended meetings, which would only take away from productivity.  His routine is to show-up at the office, rant about falling sales and unused capacity, and interrogates sales and production associates…sometimes to the point of tears.  After a few days, he returns to his out-of-state residences, and life for everyone else returns to “normal.”


This G1 died of a sudden heart attack one week before his 76th birthday. The stock in the business was passed-along to his wife.  There had never been any discussions about who would run the business either in an orderly or emergency transition.   Nor had there been any discussion regarding the transfer of stock to the G2s.  Furthermore, there were no provisions for generating the cash needed for the potential stock transfer and estate tax liabilities.


The mother immediately named her elder son president of the company. The daughter, enraged by this decision, left the company and returned to CPA work, refusing to speak with her mother and brother.  After six months, sales spiraled downward, and financial losses began to mount.  The bank called the company’s note, the business closed, and the surviving spouse needed to sell her out-of-state residences to pay-off the remaining bank balances.   By deferring any kind of transition planning, the founder had unknowingly sabotaged both the family and the business.


Why do many owner founders postpone, defer, deny and don’t do

family business transition/succession planning?


Some owners feel it is better for hard things to go unsaid, and for difficult decisions about the business to be left unmade, for fear they may lead to family and business turmoil.  However, most families survive and endure the difficult discussions surrounding transitions.  Most thrive once a reasonable plan is put into place.  The “sorting out” that occurs is better to take place sooner than later. 


Family business leaders must take time to build a strong foundation for the transition process. Without building a foundation based on communication, working agreements, and the assistance of outsiders, the transition process will most likely result in family and/or business devastation. However, a good transition process begins with a three basic components.


1)  Many people fear their family members will crumble during difficult conversations, and so they avoid them.  However, if you begin to talk about simple themes and issues surrounding the business, it will be easier to talk about the big stuff.  Start with “What does this business mean to you?  To me?  Why are we in this business?  Together?  What is the purpose of our shared enterprise?  These types of conversations can lead to healthy conversations about family members’ dreams, expectations, goals, and visions.  It provides a common language that can be adapted to other conversations.  And, it begins to form some common ground upon which to have more difficult conversations about challenges and adversity.  It is far better for families to begin these conversations and lead to “the hard stuff” than to avoid conversation and assume that other family members know what you are thinking.


2)  Talk about what it takes to be in “management.”  Talk about differing roles and responsibilities. Talk about the challenges in the business, and who is responsible for solutions.  If appropriate, also discuss how to make room for future family members to enter the business.


3)  The first step is to recruit and select a transition guide or strategist – someone who has been through the transition process in his or her own business, or has helped other families develop and implement transition plans.  Additionally, your family is integral to the process, and engaging family members can begin during organized family meetings. Accountants, lawyers, and financial planners should also be engaged in order to assist in the implementation of the plan once a plan has been determined. (Sometimes professionals currently engaged by the firm may need to be replaced if they do not have the expertise in transition planning.)  Finally, a board including outsiders should be formed to help guide the process as well as to become an ongoing resource for the next generation.


This foundation will lay the groundwork for a family to be successful in forming and implementing a family business transition strategy, and will enable family harmony and business continuity.  

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