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Why Won’t My Parents Retire and Let Me Run the Family Business

If you have spent your career preparing to take over the family business, it can be frustrating to wait for the senior generation to decide that they are ready to retire. It also may be hard to understand why mom or dad chooses to keep putting in the long hours and would rather deal with the challenges of the business instead of retiring and enjoying life.

For the next generation, the waiting is even more difficult if your parents have not created a succession plan. This causes great uncertainty regarding the role each person should be preparing for and how a successor will be chosen if a parent passes away without a plan.

Sometimes the wait exists because the parents may still enjoy running the business. They likely are in no hurry to let go of a company to which they have devoted their lives. Or, parents may not wish to deal with the complex emotions, the fear of the unknown or the hard feelings associated with choosing successors. These issues and others can create barriers to planning for a transfer of the business to the next generation.

If you want to help your parents focus on succession, it is important to understand the issues behind their reluctance to do this planning and understand the strategies for addressing them (warning: it might take years). Below are some common issues that our succession planning attorneys, working with the family’s other professionals, help families overcome to begin preparing for ownership transition and creating a succession plan.

Coping With Reasons Why Parents Won’t Leave the Business

1. They are uncertain about how they can be financially secure away from the business.
This one is huge, and succession will not be addressed if this concern is present. However, many options exist to solve this problem, and your wealth advisors and your attorney can certainly help you find one that is right for your family.

  • Common approaches include taking higher pay for a few years and saving it, selling a      portion of the equity back to the business or to other family members, creating deferred compensation arrangements, or retaining assets to lease back to the operating business.

2. Their identity is tied to the business.

  • A parent may be able to identify a new role for themselves that is related to the business such as: Chair of the Board, consultant, informal advisor, trainer/mentor, representative to industry associations or other related groups, etc.
  • Depending on interests and skillsets, a parent can develop a new role relating to a family foundation, family investments, family governance, next-generation education, or a family office.

3. They worry that their life will lack purpose without the business to run.

After they have devoted decades to building a business, it may be hard for them to see that they could have an important purpose elsewhere.

  • Help them realize that as they transition the business to someone else, they can use their lifetime of experience to benefit others. Examples of new ventures could include starting a consulting firm, speaking on business or motivational topics, serving on boards of other companies or nonprofits, leading philanthropic organizations, teaching business classes at a college, working with local business associations or business startup programs, or coaching students in business/entrepreneur programs such as Junior Achievement or DECA.

4. They believe successors are not ready to run the business.
Find out what their specific concerns are and take steps to alleviate these concerns.

  • Seek opportunities to demonstrate the ability to succeed, including rotations through all functional areas of the company.
  • Engage in learning and development such as an executive MBA program, leadership courses, mentorship plans, connections with other business leaders, and working with consultants or mentors from other businesses.

5. They believe that they are irreplaceable.
Some of the strategies mentioned above can help with this concern too. However, this one may be difficult to address without outside help.

  • Make sure the senior generation gets exposed to the skills and successes of next-generation family members and a well-functioning management team.
  • Identify friends or business acquaintances who have successfully transitioned their business and who might be helpful examples or resources.
  • Consider meetings with former owners of multigenerational businesses now managed by the next generation. This could provide an understanding of the issues they faced during the process and help gather best practices.

6. They are avoiding hard feelings that will occur in the family when a successor is chosen.
This is where a good succession planning attorney or advisor can help your family design a plan that creates a win-win situation for the members of both generations.

  • You may need to enlist additional help to move your parents to realize that if they want to ensure the continued success of the company after they are gone, they need to make decisions now that will make that happen. Help them see that it is bad for the business and for the family to have the children fighting for company control while working through their grief after a parent’s death.

7. They equate retirement with a decline in health or even impending death.
Everyone has heard a story about someone who died soon after retirement, and even though this is rarely the case, some people still equate retirement with the end of an active, healthy life.

  • If you have solved issues #2 and #3 above, this may cease to be a worry for them, since they will be plenty busy. But if this worry still exists, there are plenty of resources and professionals to help you work through this issue.

8. They fear losing their prestige in the community (the business leader and/or the spouse).

  • This is tough to deal with, although having the leader continue working in a new role in the business, foundation or family office – one that still provides opportunities for networking, speaking engagements and social visibility – could certainly help.
  • Finding a board position or a leadership position in another organization, such as a nonprofit or industry organization, can also help with this.

If you are in a waiting situation that appears to have no end in sight, perhaps it is time to engage someone to help you have conversations about the future of the business. Our succession and estate planning attorneys can often facilitate these conversations and help families start planning for a successful business future.

Family Business Alliance, devoted to advancing family business organizations for multi-generational success, designs its programming, resources, and events to meet the needs of its members at these distinct stages.  Currently, the Family Business Alliance represents nearly 170 member organizations throughout West Michigan and offers the opportunity to create connections, elevate leadership, and navigate governance.  To receive more complimentary resources, connect with us online at Family Business Alliance.

This article is reprinted with permission from Warner Norcross + Judd LLP and author Bruce Young. This article is not intended as legal advice. For additional information, please contact Bruce Young at byoung@wnj.com

Understanding the Key Transitions in the Family Business Life Cycle

Understanding the key transitions in your family business in relation to the family business life cycle can help you navigate the unique operating challenges of leading and succeeding in a family business.   With the help of Family-Owned Business Institute of Grand Valley State University and adaptations of several online resources[1], The Family Business Alliance has established a Family Business Continuum to help family businesses in West Michigan understand the distinct axes of the family business model and improve the opportunity for multi-generational success.

The Family Business Continuum Axes are defined as:

Ownership

The Family Ownership Axis identifies the key and controlling stakeholder(s) and is not linked to a specific generation.  In many cases, the first stage of ownership is established based on a Founder’s Dream.  The succession to the next generation can be either identified as a “New” Founder’s Dream or a Sibling Partnership. In a sibling partnership, the siblings jointly own the shares of the business, however, leadership may be singled out to a primary member.  As the family and business operations grow, ownership models may evolve to a Cousin Consortium which includes extended family through multiple generations or may evolve to a model which includes Distant Relatives.

Leadership

The Leadership Axis defines the experience and engagement of family leadership in the business. Stages include Leading the Business where control is either one primary family leader or shared among siblings.  The family leader(s) oversee all strategy and operations.  In Joining the Business, a potential successor(s) is introduced to build professional experience, operational experience, and industry knowledge.  At this stage, the business often

implements professionalization of roles and formal processes are developed.  As the next generation has its own visions and often a strong desire to introduce more strategic thinking, they assume mid-level management roles, defined as Working Together.  This leadership expansion phase is often linked with restructuring and may include the development of a board of directors, family governance policies, and family council meetings. Leadership succession can span more than a decade as a succession plan is created and implemented. Each generation transitions to new roles both internally and externally as they Pass the Baton. The family may also sell or expand to different markets and the family business may evolve to a Family Office.

Business

The Business Axis characterizes the stages of a business as it strives to move from a Start Up to Growth and Formalization, defined as the company leaving the niche market and entering a more competitive and larger arena.  Often, organizations engage in strategic planning with outside professionals to meet organizational objectives to achieve Maturity and Stabilization.  In this stage, the business focuses on the development of organizational talent and seeks to create a flexible framework to take advantage of market opportunities and manage threats.  At Regeneration, the key stakeholders face a strategic choice for further growth and maturity. If reinvention is not prioritized, these businesses have a heightened risk of decline.

Family Business Alliance, devoted to advancing family business organizations for multi-generational success, designs its programming, resources, and events to meet the needs of its members at these distinct stages.  Currently, the Family Business Alliance represents nearly 170 member organizations throughout West Michigan and offers the opportunity to create connections, elevate leadership, and navigate governance.

Understand your organization on the Family Business Continuum and download complimentary resources available through the Family Business Alliance.  Serving over 165 members, Family Business Alliance seeks to advance family business in West Michigan.  Together we, create connections, navigate governance, and elevate leadership.

[1] Sources: Ivan Lansberg, Succeeding Generations; Thwart Magazine, Family Business Life Cycle; Forbes How to Use the Family Business Life Cycle to Personalize your Family Office.

Your 7-Step Plan for Creating Chaos in Your Family Business

This article was originally published by Warner Norcross + Judd and has been republished with consent.

William Lentine

Most business owners know that proper succession planning can help keep their business running strong into the next generation. They understand the importance of creating a plan to prepare heirs and key employees to run the business when it is time. But sometimes owners are busy and fail to plan for the future of their business in a timely manner.

Executing an unplanned transition when the family business leader becomes incapacitated or passes can be painful for the family (at an already difficult time) and potentially damaging for the business. Families in this situation often engage Warner to help them create a path forward for the business.

We think it makes sense to offer some lessons learned by these families as a resource for current business owners. Instead of offering a typical “best practices” list, we took a different approach. Here are some “worst practices” that will surely wreak chaos in your family business after you pass – from families who have experienced an unplanned business transition

7 Ways to Create Chaos in the Family Business After Your Death

  1. Don’t document your good intentions. Think about succession planning for years, but don’t document any of your thoughts or planning ideas for the family. Or, to make it really interesting, keep jotting down ideas on various notepads, napkins or sticky notes over the years, creating obvious contradictions between the ideas.
  2. Leave business ownership to your family but without a skilled operator in charge of it. This spreads chaos over the widest possible range after your death, affecting family members, employees, customers, suppliers and professional advisors when the battle lines are drawn between children and possibly your spouse as they wrestle for control of the company while dealing with their grief.
  3. Pick one winner. Leave both the business equity and control to one child that seems reasonably responsible and ask them to do the “right” thing for their siblings and remaining parent. For maximum family strife, the “responsible” child should be married to a spouse who is greedy or difficult to deal with.
  4. Don’t do any estate or tax planning. This way your heirs will not only struggle with the above issues but will also inherit a huge tax bill that they were not expecting and will have to cover by taking out loans or by selling the business.
  5. Micro-manage future leaders. Allowing your children or other key employees to manage portions of the business will allow a leader or group of leaders to naturally emerge, whereas micro-managing those heirs and other key employees in their current positions will ensure that they won’t learn how to lead, make decisions or accept responsibility.
  6. Don’t discuss the future of the family business. Avoiding these conversations ensures that you won’t know whether your heirs or current managers actually want to run the business and allows you to create a pressing sense of obligation for the next generation to work in or run the business. Even better, this sense of obligation can create next generation business leaders who are resentful or who lack the passion that you brought to running the business.
  7. Keep your professional advisors under wraps. Failure to introduce your professional team to your children can create havoc for your business because neither of these groups will be prepared to handle the inevitable difficult discussions that ensue during a transition. Plus, your children will not know and may not trust your attorney, CPA, investment advisor or other professional advisors, adding even more obstacles to this transition.

Having No Plan Can Also Cause Chaos in Your Business

Naturally, we wouldn’t expect you to do any of the things on this list on purpose to cause disruption and bad feelings in your family. But sometimes, not planning for the future can have the same impact on your family as if you had intentionally tried to cause chaos, leaving loved ones in a less than desirable position down the road should something happen to you.

Many of the steps involved in successfully transitioning a family business can take years, even decades to complete, so it is better to start planning sooner rather than later. Contact your Warner attorney or Bill Lentine at wlentine@wnj.com or at 248.784.5061 to begin planning for the eventual transition or sale of your family business.

Originally published by Warner Norcross + Judd.

Rightsizing Risk Series: Creating Value for the Future

As the economy begins to emerge from beneath COVID-related restrictions, many uncertainties remain in the small business sector. But one step you can take to right-size your risk and improve your opportunities for future growth is to make sure you have good financial management and tighten your financials, according to John Ruther, managing director for consulting firm O’Keefe. He was interviewed by Sheri Welsh for The Welsh Wire podcast, sponsored by the Family Business Alliance.

“Making sure that somebody can see three to five years of really good solid financials, that you can’t poke holes in, it turns out to be really valuable,” he says.

Ultimately, the goal of good financial management is to create value for the future, Ruther says.

“And obviously, if something’s not valuable anymore, then there’s not a need for it. So as long as you’re keeping it valuable, then that makes all the sense in the world.”

Ruther also says it’s also important to expand company knowledge and expertise beyond the firm’s founder.

“In a lot of cases, you’ll see that the people who work for or work within that company look to that person to make all those decisions. So when it comes time to look to either pass it on or exit or take a look at even expanding the customer base, [if] it’s that person that is the reason that the business is so successful [then] it’s really important for you to start to pass that information on to somebody else.”

He also says you can help future-proof your business by spending time now in strengthening relationships and building trust with suppliers, bankers, etc.

The Family Business Alliance serves to advance family businesses in West Michigan with the tools, strategies, and partners to achieve multi-generational success.  We provide educational opportunities, events, and resources that will assist you to elevate leadership, navigate governance and create connections. 

Rightsizing Risk Series: Fraud in the Family Business

The Association of Certified Fraud Examiners expects employee embezzlement to increase by 71 percent over the next 12 months. Is your family business prepared?

One of the simplest steps to take is regularly checking your bank statements. “I know that those of you that are business owners may think, ‘Oh, I don’t have time, I have people to do this for me,’ but I will tell you, you will catch a lot of things if you periodically run and check the bank statement, just scroll through and see what a few things are,” says Kristen Spence, Fraud & Litigation Manager for Hungerford Nichols CPAs + Advisors.  

Other topics discussed during the 30-minute podcast include how to spot red flag warnings in payroll operations, securely manage manufacturing inventory, and reduce risk by implementing proper internal controls.

Those formal internal controls are especially important for small family-run businesses, says Katy Felver, Business Advisor for Hungerford Nichols CPAs + Advisors.  “It’s a little bit more challenging to put internal controls in place [but] it is possible,” she says. “And it isn’t because I don’t trust you, it’s because we’ve got to have each other’s backs. We always have to make sure that we’ve got it like you’re watching me, I’m watching you. We’ve got transparency and honesty going on,” continued Felver.

For any business owner, there is no substitute for knowing your employees and knowing what’s going on.

“Kind of my motto is when you’re a business owner, if you’re able, keep your finger on the pulse of what’s going on in your organization,” Spence says. “And a good way to do that is, honestly, hang around the water cooler. Get to know your employees. And if they are comfortable with you, eventually, they will start telling you things that they wish they had told you,” she stated.

Spence and Felver shared their advice for managing fraud risk when they were interviewed by Sheri Welsh for The Welsh Wire podcast, sponsored by the Family Business Alliance.

Banking Relationships that Make an Impact to your Bottom Line

Family-owned small businesses face lots of challenges. 2K Tool, founded 15 years ago by Heidi Smith and her son Kevin, has navigated a path to growth and success by having a productive partnership with their banker, Old National Bank. “I think that partnering with a banker who understands your industry is very important, [who] understands the manufacturing industry a lot, and you have to click in a way that you trust the relationship, too,” Heidi says.

2K Tool is an innovative leader in custom machining and mold making. It has 25 employees in Grand Rapids, including Heidi’s husband, her daughter Amanda, who serves as operations manager, and Heidi’s son-in-law Aric.

New Research Suggests Family Business Profit in Risk Taking

Family businesses perform better in highly competitive environments if they invest in risky activities like mergers and acquisitions, according to new research on risk aversion versus performance in family-owned firms.

Ana Gonzalez, Director of the Family Owned Business Institute and Assistant Professor at the Management Department at Grand Valley State University, talked about her findings when she was interviewed by Sheri Welsh for The Welsh Wire podcast, sponsored by the Family Business Alliance.

Female Leadership in the Family Business

New research on gender diversity in family businesses shows that women tend to be more upbeat about business performance than men — but that changes if the women are in leadership positions, according to Ana Gonzalez, Director of the Family Owned Business Institute and Assistant Professor at the Management Department at Grand Valley State University. She was interviewed by Sheri Welsh for The Welsh Wire podcast, sponsored by the Family Business Alliance.

 

Why Won’t My Parents Retire and Let Me Run the Family Business?

This article was originally published by Warner Norcross + Judd and has been republished with consent.

Bruce Young
Partner, Warner Norcross + Judd

If you have spent your career preparing to take over the family business, it can be frustrating to wait for the senior generation to decide that they are ready to retire. It also may be hard to understand why mom or dad chooses to keep putting in the long hours and would rather deal with the challenges of the business instead of retiring and enjoying life.

For the next generation, the waiting is even more difficult if your parents have not created a succession plan. This causes great uncertainty regarding the role each person should be preparing for and how a successor will be chosen if a parent passes away without a plan.

Sometimes the wait exists because the parents may still enjoy running the business. They likely are in no hurry to let go of a company to which they have devoted their lives. Or, parents may not wish to deal with the complex emotions, the fear of the unknown or the hard feelings associated with choosing successors. These issues and others can create barriers to planning for a transfer of the business to the next generation.

If you want to help your parents focus on succession, it is important to understand the issues behind their reluctance to do this planning and understand the strategies for addressing them (warning: it might take years). Below are some common issues that our succession planning attorneys, working with the family’s other professionals, help families overcome to begin preparing for ownership transition and creating a succession plan.

Coping With Reasons Why Parents Won’t Leave the Business

1.They are uncertain about how they can be financially secure away from the business.
This one is huge, and succession will not be addressed if this concern is present. However, many options exist to solve this problem, and your wealth advisors and your attorney can certainly help you find one that is right for your family.

    • Common approaches include taking higher pay for a few years and saving it, selling a      portion of the equity back to the business or to other family members, creating deferred compensation arrangements, or retaining assets to lease back to the operating business.

2. Their identity is tied to the business.

    • A parent may be able to identify a new role for themselves that is related to the business such as: Chair of the Board, consultant, informal advisor, trainer/mentor, representative to industry associations or other related groups, etc.
    • Depending on interests and skill sets, a parent can develop a new role relating to a family foundation, family investments, family governance, next-generation education or a family office.

3. They worry that their life will lack purpose without the business to run.
After they have devoted decades to building a business, it may be hard for them to see that they could have an important purpose elsewhere.

    • Help them realize that as they transition the business to someone else, they can use their lifetime of experience to benefit others. Examples of new ventures could include starting a consulting firm, speaking on business or motivational topics, serving on boards of other companies or nonprofits, leading philanthropic organizations, teaching business classes at a college, working with local business associations or business startup programs, or coaching students in business/entrepreneur programs such as Junior Achievement or DECA.

4. They believe successors are not ready to run the business.
Find out what their specific concerns are and take steps to alleviate these concerns.

    • Seek opportunities to demonstrate the ability to succeed, including rotations through all functional areas of the company.
    • Engage in learning and development such as an executive MBA program, leadership courses, mentorship plans, connections with other business leaders, and working with consultants or mentors from other businesses.

5. They believe that they are irreplaceable.
Some of the strategies mentioned above can help with this concern too. However, this one may be difficult to address without outside help.

    • Make sure the senior generation gets exposed to the skills and successes of next-generation family members and a well-functioning management team.
    • Identify friends or business acquaintances who have successfully transitioned their business who might be helpful examples or resources.
    • Consider meetings with former owners of multigenerational businesses now managed by the next generation. This could provide understanding of the issues they faced during the process and help gather best practices.

6. They are avoiding hard feelings that will occur in the family when a successor is chosen.
This is where a good succession planning attorney or advisor can help your family design a plan that creates a win-win situation for the members of both generations.

    • You may need to enlist additional help to move your parents to realize that if they want to ensure the continued success of the company after they are gone, they need to make decisions now that will make that happen. Help them see that it is bad for the business and for the family to have the children fighting for company control while working through their grief after a parent’s death.

7. They equate retirement with a decline in health or even impending death.
Everyone has heard a story about someone who died soon after retirement, and even though this is rarely the case, some people still equate retirement with the end of an active, healthy life.

    • If you have solved issues #2 and #3 above, this may cease to be a worry for them, since they will be plenty busy. But if this worry still exists, there are plenty of resources and professionals to help you work through this issue.

8. They fear losing their prestige in the community (the business leader and/or the spouse).

    • This is tough to deal with, although having the leader continue working in a new role in the business, foundation or family office – one that still provides opportunities for networking, speaking engagements and social visibility – could certainly help.
    • Finding a board position or a leadership position in another organization, such as a nonprofit or industry organization, can also help with this.

If you are in a waiting situation that appears to have no end in sight, perhaps it is time to engage someone to help you have conversations about the future of the business. Our succession and estate planning attorneys can often facilitate these conversations and help families start planning for a successful business future. If you have questions related to succession planning or transferring the ownership or control of a family business, please contact your Warner attorney or contact Bruce Young at byoung@wnj.com or 616.752.2144.

Originally published by Warner Norcross + Judd.