Challenges of Exiting a Family Business

November 17, 2015Exit Strategies, Family Business, Selling a Business, Succession Planning

All business exits are emotional. As the business owner, you have poured your heart, soul, blood, time, money, and energy into this endeavor. Letting go will be the most difficult element yet.

For family businesses, it becomes even harder. Take a normally challenging situation and times it by 1,000.

What’s interesting about family businesses is that the dynamics and difficulties extend far beyond the founder’s relationship. Every family member involved in the company, either by choice or with another family member envisioning their involvement, develops a unique connection. Those can either be positive or negative.

Before we dive into the challenges, let’s touch on the structure of a family business. The founders are considered Generation 1 (G1). As you move down the line, you have family members working for other family members. When you have someone working for their parents, in-laws, aunts or uncles that is Generation 2 (G2). While the classifications continue down the line (G3, G4, G5, and so on), I find the most challenging transitions tend to revolve around G1 and G2.

The founders (G1) have the hardest time exiting the business. Handing over the reins to G2 can be like pulling teeth. Many times the official handoff is only ceremonial, with the original founder staying involved in the day-to-day operations. Their inability to transition often taints the culture or limits the abilities of the new family member taking over.

Additionally, bloodline-based business comes with certain spoken or unspoken expectations depending upon the culture. These come into play as the business extends into G2 and beyond. Many times the preceding generation expects their lineage to continue working in the business, filling their shoes if you will.

For the following generations, leaving the business isn’t solely a career decision. It plays into family relationships.

I’ve worked with clients where G2 will be excommunicated from the family or removed from the will if they leave the business. G2 feels trapped in a future where exiting will cause more problems than it’s worth. I don’t blame them. There are a lot of relationships in the mix. Siblings, kids with parents, in-laws, and spousal politics blend into business decisions. This blending can cause dysfunctional family dynamics.

Those surface when someone wants out.

The difficulties of mixing family and business are real. Communication and thoughtful planning are essential to navigating the two, particularly when it comes to succession planning and exits. The worst experiences stem from bottled up emotions that are held in. One day, that individual reaches their limit and explodes. When individuals hit that point, a downward spiral ensues. Words are said that cannot ever be taken back. Relationships are severed. Families are fractured beyond repair.

Those scenarios don’t need to be the story of your family’s business. That happens when a thought-out succession plan is either ignored or not openly communicated to the stakeholders.

I’ve seen it go downhill, and I’ve seen it happen successfully. The defining factor is a strategic, thoughtful, and communicative exit with time to process emotions and recalibrate relationships. Those stories continue with both the business and family intact.

I much prefer the latter.

If you would like to establish a succession plan for your family business that mirrors the second story, contact me today. Together we can navigate the family dynamic and set up your business (and family) for multi-generational success.