Avoid seller’s remorse when selling a business — to family

As a family business consultant, one of the most common issues I come across is the disappointment when a family business is transferred from parent to child, and the expectations are not met. This can happen for a number of reasons, from differences in generational values to differences in motivation. But the main cause is a lack of communication. In most cases, each party — parent and child — go into the succession process with either a different understanding about the correct approach for shifting leadership responsibilities, or about what the business should be and how it should be run. Too often these ideas are not discussed prior to the transition and inevitably cause both emotional and business stress for both parties.

Emotional fallout of unmet expectations

To ensure the successful transference of the business from one generation to another, there are experiential differences between generations that must be considered.  In many cases, the head of a family business is the one who built the business. Their experience — building something from scratch, working day and night to achieve success at the expense of a social life — is what they believe to be the recipe for success, and that recipe is what they expect from their children.

But that’s rarely the case. The children have lived a far different life and oftentimes have financially benefited from the success of the family business, making their lives and their priorities very different.  Unfortunately, I have seen parents erroneously conclude that these differences equate to a lack of work ethic in the younger generation. These distinct life experiences can also create different ideas about how to approach the business, and in many cases the desires of the next generation do not match up with the desires of the parent. This is when problems occur. Many family business leaders have spent their lives building something that they want to pass onto their children, only to see that excitement turn to disappointment, dismay, feeling unappreciated and even resentment. And these sentiments aren’t just for the parent, but the child as well. These disagreements and disappointments often leave parent and child in an uncomfortable stalemate. But the truth is, they are easy to avoid through communication — and a clear succession plan.

Have the Critical Conversations

Honest conversations about compensation, timelines for transition, roles and expectations should begin years before you are ready to hand your business over to the next generation. Expectations must be laid out clearly, so that when opinions and styles differ, they can be worked out long before the transition is made. Make yourself clear, but also be willing to listen. Just because your approach business one way, doesn’t mean it’s the only way to achieve success. The world is changing, and the next generation may have ideas that will help drive the business’ success after you depart.

Don’t Look for a Clone

Those who start family businesses are usually strong people who took a lot of risks to achieve success, but it is not realistic to expect the next generation to fit that exact mold.

It can come as a big surprise to some family business leaders that their offspring’s style is very different from theirs, but that doesn’t mean it won’t work. In some cases, their style can be a big hit with clients and staff members. For instance, it may represent a welcome change to move from an emotional, passionate, frenetic CEO to one who is calm, thoughtful and never panics. What should never be lost, however, are the aspects of style that have made the business successful — non-negotiable things like responsiveness and quality control.

Put Incentives in Place

Don’t give away the business, sell it! The best way to incentive the next generation is to ensure they have skin in the game. Many family business owners take this approach, and sell the business to their children, but at a price much lower than it would get on the open market. The idea isn’t to profit, it’s to set you kids up for success. Negotiate your terms up front — and years before you plan to retire. By clearly laying out these expectations, you’ll not only set up the family business for future success, but you’ll avoid disappointment when the next generation handles things differently.

Develop a Plan

As a family business consultant, I can’t stress enough how important it is to have a business succession plan — and have one early. Your plan should include more than how the transition will take place. It should include development in both technical and communication skills. It should include clear goals and benchmarks. It should include learning the business inside and out. It may even include bringing in an interim CEO to give the kids time to prepare to take over. In short, it should include every facet that will set the next generation up for success.