Business Succession

By Dave Driscoll

Every parent who is also a business owner dreams of someday passing on the business to his or her children. The parent envisions handing the baton to the child in a glowing setting of love and appreciation. The parent is filled with satisfaction that the business will continue as a family tradition and that the child will be emotionally engaged and financially secure. What a beautiful scene.

Let’s dive into some of the real emotional issues in a generational transfer. A parent’s love for a child is unconditional. Unfortunately, unconditional love can present issues in a generational business transfer. Parents have committed to the safety and security of their children – to say that the parent’s judgment is clouded is an understatement.

Consider the following:

• The skills of the owner/parent that have made the business successful are a result of that owner’s generation and education and the economic conditions present throughout his or her tenure at the helm of the business.

DNA does not ensure the skills or success of the child. The children were raised in different circumstances, including different education, technology, and socioeconomic conditions, and may or may not have the skills required to manage the business into the future. The pressure to perform, frustration and anxiety created among parent, child and the rest of the family are significant. Would you want your child to step into that?  Some have the ability to handle these demands, yet I would suggest that many don’t.

• Succession is the path of least resistance for the parent.

Selling a business is hard work full of emotion and change of status, ego and prestige. Parents are human beings too. If they can avoid the emotional upheaval, tactical preparation and process of selling a business, they will do so.

Generational succession enables the parent to retain the emotional gratification of being a business owner, still be involved in the business (to the extent desired), retain the asset value of the business in his or her estate and, oh by the way … continue receiving a generous salary from the company. Who in their rational mind would give that up?

Generational transitions can be successful – if the candidate(s) is/are qualified and quantified on abilities to lead and succeed rather than just based on the family name.

The successor’s emotional and intellectual profile must include the skills necessary to carry the torch. Without the practical and leadership tools, he or she will not succeed, causing a painful decline for the business and the family condition. Saddling an unprepared child with this burden is more cruel than admitting if that child is not the best candidate for the job.

Generational transitions require the same analysis as does hiring a CEO. Emotional, educational and real-world qualifications must be assessed with the same standards that would apply to any outside candidate. The results of these investigative tools should be viewed from how Johnny or Susie ranks within a peer group and quantification of the risks to the enterprise under Johnny’s or Susie’s leadership. This may be a difficult process, but in the long run this honest assessment will be best for everyone in the family.

Dave Driscoll is president of Metro Business Advisors, a mergers and acquisitions, valuation, and exit/succession planning firm helping owners of companies with revenue from $2 million to $15 million sell their most valuable asset. Reach him at DDriscoll@MetroBusinessAdvisors.com or 314-303-5600 or visit www.MetroBusinessAdvisors.com.