During this difficult time, many of us have been spending significantly more quality time with our direct family members. For many business owners this is a rare opportunity as owning and managing a business often requires too many hours a week to count. During this pandemic, many business owners have been at home adapting to a new reality for their business and home-schooling children, teenagers and in some cases young adults. This isn’t easy – but does provide an opportunity to initiate meaningful conversations about the family business and the opportunities it can provide.
One of my clients, Dave, called to tell me he had to rent a house nearby since all 3 of his adult daughters and 6 grandchildren came home right as news of the pandemic hit. So not only is he running a business from home, it feels like he is running a daycare, bed and breakfast and laundromat. Funny enough, Dave is in heaven surrounded by his entire family. He is using this time to educate his children and grandchildren about his business, guiding principles, family business rules, business philosophy and values. His children are equally pleased soaking up as much of his knowledge as possible.
In a time where it can seem difficult to move forward, many business owners have chosen to press pause on their succession planning (and in many cases business planning as well). I encourage all business owners to use this time to have the difficult conversations with family members and business partners. A note of caution – it is often wise to ensure as the business owner(s) you are comfortable and confident with your personal goals, principles and values with respect to passing on the business before sharing your philosophy with your family. If there are multiple business owners, this is an ideal time to have honest conversations about:
- What happens if one of us (owners) die? Do we pass our ownership to our spouses or children? Do we need insurance to help deal with this issue?
- What happens if one of us becomes incapacitated? Do we inherit each other’s spouses as business owners?
- What if one of us wants to retire? Do we simply hold onto ownership, but stop working? What does retirement look like? Will our ownership be paid out? If so, will it be paid all at once? If it’s paid over time, will there be an interest component tied to it?
These are basic questions that have a huge impact on your businesses ability to weather difficult circumstances and survive long-term. Often, these conversation are not had amongst business partners and therefore not shared with direct family members. If the business is open to the next generation, they often see that these questions are not answered and can clearly see the impact it will have on them in the long-run. “Will I have to run the business with my cousins if my uncle passes his ownership to all 3 of his kids? Those 3 kids don’t get along needless to mention none of them have ever worked in the business – will they hinder my (and potentially my siblings) ability to operate and keep this business moving forward?”
We are seeing a trend where the older generation has not been able to work out these issues with their business partners/family owners. Yet the next generation that is often already entrenched in the business and hopeful of becoming an owner has too many questions and an uncertain future – not to mention the additional uncertainties that have been created by this global pandemic. Working for years plagued by uncertainties in career and ownership trajectory can cause unneeded stress and anguish that undoubtedly impacts family relationships.
Dave is lucky in the sense that he owns his business 100%. This means that he doesn’t have to come to terms with all the above questions with another business partner before sharing the answers with his direct family members. The important part for him is to be clear with respect to what he wants and for him to share his ideals, philosophy and principles with his family and ensure that everyone understands what the business can expect from them and what they can expect from the business. It is extremely important to ensure all of this is put to paper. Far too often everyone has a different understanding of what has been said, agreed to or implied.
For those business owners that do have partners in ownership (whether family or non-family) ensuring the above questions are answered and reflected in each business owners’ estate plan and will is key to long-term success. Many business owners do not have these conversations with one another because they have so many other priorities to deal with. With Covid-19, we all have many priorities pulling us in different directions, but we need to be brave enough to deal with these issues sooner rather than later – later is often too late.