Are you the owner of a family business? Then, you probably already know you face unique challenges that other companies don’t have to worry about. And, those challenges only grow more intense as you start thinking about an exit strategy.
More than 70% of businesses put on the market never sell. That’s 70% of those put on the market, don’t sell. And countless more businesses never even get listed but rather die quietly due to an owner’s unexpected death or illness.
Only 34% of family businesses survive to the 2nd generation. That’s 2 out of 3 never successfully make it from mom and dad to the kids. And only 14% of family businesses survive to the 3rd generation.
Why? Simple: Failure to properly plan for the succession of the business to a buyer/next generation and failure to plan for the successful exit of current owners.
Bottom line: Business owners wait too long to begin planning for this HUGE transition. It’s a major issue afflicting our society, and one that will only grow over the next decade as hundreds of thousands of baby boomers look to sell.
As we well know, the first step in solving any problem is recognizing there is one. In the case of the aging business owner, the simple act of talking openly with someone about exit planning can spark action. And action can mean the difference between a seamless transition at fair value or a disastrous failure. If you are a loving spouse, child, parent, friend or confidant of a business owner that is avoiding tackling exit planning for their business, this article is written for you. As this tsunami swells, it is critical that you – the child, the spouse or the close friend – assume a vital role: Starting the Conversation.
Whether you are the business owner, next in line for a business succession or simply a concerned loved one, here are some tips for starting the conversation :
- Have empathy. It’s the ability to understand someone else’s feelings, attitudes, and perspectives. The ability to “put yourself in someone else’s shoes”. Start by opening your mind to think about the situation exclusively from their side. Think about how they feel about their business. Think about the hours they put into it, the hard times they have endured, and the success they have achieved. Respect and embrace those thoughts, and keep them with you as you talk.
- Treat it like a business meeting. This is a BIG deal. Do not treat it as you would if you were talking about last weekend’s college football games. Don’t bring up in passing or with playful jests. Doing so diminishes the importance and may provide an avenue for the owner to continue avoiding the topic. Set aside time for this conversation, as you would with an important business matter. Ensure there are no distractions. Doing so will set the tone that it is a serious conversation. You words will instantly come across as more sincere and genuine.
- Prepare yourself. Come into it with a list of things you would like to say and questions you would like to ask. Mentally, have an open mind and be prepared to listen. Emotionally, try to remain neutral so they can express themselves completely.
- Understand your ideal outcome. The ideal outcome may be lightly different for everyone having this conversation, but it generally looks something like this:
- You effectively express your own concern and love for this business owner.
- You are able to ask a few questions.
- You schedule a time to revisit the conversation at a later date (with more information, a 3rd party, after serious thought).
- Don’t be discouraged if they aren’t ready. It is very likely that they won’t be ready to open-up the first time you talk. Don’t be discouraged! Be respectful of their process for dealing with this, and focus on committing to another time to talk in the future (a couple weeks later). The business owner will probably think and process extensively over the next couple weeks, before coming to your next meeting much more prepared.
- Seek the help of a 3rd party — eventually. Not for the first meeting – you may risk blindsiding and/or offending the business owner. You want them to open up, not shut down. However, assuming an initial conversation went well, you may suggest having a 3rd party present for subsequent meetings in order to help facilitate discussion. Look for their most trusted advisor – whether a financial planner, banker, accountant or attorney. If they don’t have a most trusted advisor, look for a Certified Exit Planning Advisor (CEPA), as they have a deep understanding of common concerns, as well as strategies to move forward.
- Just do it. We all want to avoid having the difficult conversations – its human nature. Most will avoid it, ignore it, and make excuses not to do it. Be one of the few. You aren’t doing it for yourself, you’re doing it for someone you care about. Someone who is woefully unprepared. Someone who’s future happiness depends on you Starting the Conversation. Your choices will make the difference between implementing a successful exit or the destruction of a lifetime of work.
Thinking about the future can seem overwhelming. But, it doesn’t have to. At Epiphany Law, we partner with our clients and their families to help them find the best path forward. We are known for helping family business owners navigate complex issues and find innovative solutions. To learn more about how we can help your family business write its next chapter, call us at 920-996-0000 or contact us here.
