It may be cold where you are, which provides an opportunity to work on some of those important, but not urgent tasks on your infinite list of things to do. We think closely-held and family-owned companies need to get their go-forward plan thought-through and written down. Here’s our starter list for you as you consider where to spend your time.

Notes to the current generation of ownership

Family comes first, we have promoted this concept for decades and it is still at the heart of our consulting work. The family is more important than the business. It’s like the old joke: Guy asks his surgeon, “After the operation, will I be able to play the piano?” The doctor replies, “I don’t see why not.” The patient says, “That’s great, cause I can’t play now.” 

If your family dynamic is not in sync, this will not fix it. If you don’t like your family, you can pretty much skip the rest of this column. (Unless you are looking for new ideas on how to really stick it to them. If that’s your game, keep reading.) The point is: Getting your transition plan in place does not guarantee family harmony, but it does improve the odds that your best wishes for the family and the business will prevail. 

If it is your intent to punish the next generation for the intense pain that parenting them has caused you, don’t work through the legal issues now, let the courts and high-paid lawyers figure it out after you are out of the picture.  

If you are afraid you will hurt someone’s feelings as you sort through the process, doing nothing allows you to hurt everyone’s feelings, especially any kids who have invested their time and energy into the company. Burdening them with fighting it out, in some cases to get what they have rightfully earned, is not a great way to show your appreciation for their dedication and hard work.

If your ego cannot handle the idea that the company could possibly continue after you are out of the picture, you cause the family and company to squander a lot of “intramural” energy. In addition, significant dollars will be spent that might otherwise be used for serving customers or battling the competition. While this is not a sure thing, getting everyone sidetracked certainly increases the odds that the company will perform poorly after you are out of the picture.

As with many activities in life, the task is not complete until you’ve completed the paperwork. We know of many instances over the years where the current generation stated their intent, made commitments to various family and non-family team members, but never codified that intent. In our experience, even well-meaning people can have very different recollections of the same conversation only minutes afterward. People even interpret written directives with their own personal spin, so getting it as clear as possible is critical, even if you say, “This would never happen in my family.”  

If you aren’t certain what you want to do with the business, let the next generation fight it out. A modern-day survival of the fittest. In addition to the damage it will cause to the family relationships, the outcome will be about as random as a roll of the dice. (This solution mostly guarantees that nobody will like the outcome, except the attorneys who will spend hours and a lot of your dollars fighting it out.) 

We are aware of a situation where three brothers are kicking the can down the road. When one of the brothers dies, the fighting will begin. We’re predicting that the spouse of one of his children will end up a significant stockholder in the business. One of the few things that all three brothers agree on is that they don’t want this spouse anywhere near the business. By their inaction, his other children will have to suffer through this spouse’s only objective, which will be getting the dividend checks.

It is difficult to figure all this out now, but if you don’t, we bet that you will not be able to imagine how far the outcome will travel from your desires for the family and for the business. In our minds, it is fair that children are not treated equally. This is especially true when some children are active in the business and others are not. Giving both children an equal number of shares in a business, where one is the CEO and the other is not involved or plays a lesser role, is equal, but unfair. It, in effect, punishes and unfairly burdens the CEO child as they run the business. Ideally, there are ways to handle an estate that bring fairness to the process without making life miserable for children invested in the business.  

Get help from good advisors who have experience in your type of situation. This may or may not be your current attorney based on their area of practice. We have seen instances where the family attorney “fakes it” often with the best of intent, but in the end really messes up the situation. Take time to do reference checks to determine the right advisors for you. When you find a good advisor, often you can explain your desires and they can offer up ideas and options for your consideration. The point is, just because you cannot imagine any way to resolve all the issues, doesn’t mean that an expert in this area cannot help you to get there.

Do it soon, the clock is ticking. As with many of these issues such as retirement and end of life challenges, most of us wait a couple years too long to get the process really going.

Note to the next generation of ownership 

Family comes first, we have promoted this concept for decades and it is still at the heart of our consulting work. In our experience, preserving the family relationship is better than fighting about the business.

While you may not be able to insist that your parents get the transition to your generation figured out, we think it is fair to raise the topic with them. If you are having trouble broaching the topic, give us a call and we will help if we can (with broaching the topic, not with the legal stuff as that is not our area of expertise).

We don’t think it sounds greedy if you are simply requesting that they get their objectives and intensions recorded. Having their goals recorded gives your parents the best odds of having their goals achieved when they are out of the picture. Do it soon, the clock is ticking. As with many of these issues such as retirement and end of life challenges, most of families wait a couple years too long to get the process really going. Yes, this is a repeat from the note to the current generation; it’s really important.

Next generation preparation

We have worked with many closely-held, family-owned companies over the years and this is probably the biggest challenge they face. We have heard the “curse of the third generation” assertion just like most readers have. We have not tracked our experience to determine whether it is statistically correct or a made-up statistic that crops up from time to time. We think that proper preparation can significantly reduce the number of 3G disasters.

One of the first things to do is to set proper expectations with the next generation as to the importance of their preparation and the current generation’s commitment to the process. We will offer up a copy of the letter that my father, Rich, wrote to me (and my brother Joe) many years ago as he was kicking off the transition process. If you would like a copy, please email Jen@go-spi.com.

Start the preparation soon. Don’t wait until the business is suffering from neglect and in disrepair. Years ago, we described a cartoon we use in seminars of an airplane headed straight down just feet from the ground with the caption, “Son, it’s all yours.” Sadly, there are almost always people who pull us aside and say, “That’s my dad/mom and me.” The current generation, sometimes loses control of the business, but doesn’t get the business transitioned until the situation is beyond hope. Often, they drag their feet thinking that the next generation is not ready to take the controls or because they can’t imagine what they would do in retirement even though they have pretty much retired on the job.

One mixed-blessing trend is that we are seeing a growing number of daughters who are being ill-prepared for their role as the next owner. We are delighted that more daughters are staying in our industry and taking serious roles in their companies. We are saddened that they are faring no better than their brothers regarding proper preparation for their role and in getting the business properly transitioned to them. 

Good next generational preparation does not happen by default or by accident. In our experience, the preparation process is even worse than the legal part often starting five years or more after it should have begun. Regardless of the excuses and rationalizations, delaying the process is seldom, if ever, a good thing for the business or next generation. Some parents delay because they want to allow their kids to have a wonderful childhood. We get it, but preparing them for their role can be a wonderful bonding process building a mature, responsible individual who is ready to lead the business going forward.

We have helped many companies recover from botched transitions and, generally, they are not much fun for us or for the family. There are also many stories with happy endings with owners with thoughtfully planned and well-executed succession plans. So, get your plans in place and your preparation completed so you can be one of the happy stories.