Succession Planners know that only about 1/3 of small business owners REALLY WANT their kids to join them in their business. Another 1/3 are ambivalent. A final 1/3 don’t want their kids in the business.
Bringing your kids into the business carries with it a host of issues that can and often do have a large impact on both business and family dynamics. Here are some thoughts on how to include your kids successfully.
1. Like what you do.
There is a direct correlation between wanting your kids in the business (and your kids wanting to come into the business) and your attitude toward your work. For instance: funeral service is famous for long, erratic hours. If you or your spouse think this is a burden and frequently complain and whine it is unlikely your kids will aspire to join you. On the other hand, successful family businesses see the inconveniences as part of the normal price to pay for the opportunities that ownership offers. If you AND your spouse LIKE what you do your kids are likely to want the same. I stress the need for husband and wife to agree on this point because it does no good for you to be happy and your spouse to be complaining or (worse) resentful.
2. Be very clear.
Successful transitions typically have a history of clarity regarding expectations beginning at a young age for the children. Work ethic being one of the most important. How a child enters the work environment is critical. If you have employees, they will expect your kids to move into management and ownership and they will usually be OK with it. But there is an implicit and necessary expectation that your kids will be willing to “pay their dues.” Your business may be large enough to offer your child with a finance degree a position in administration. But they need to spend some time on the front lines learning what the “customer-facing” staff do. It may not be necessary for them to become an embalmer, but it is necessary for them to show a willingness to do night removals. This should be understood by your kids long before they choose to enter the business.
I have a strong bias against non-participating ownership. I prefer that owners make it clear from an early age that if you don’t work in the business you can’t own the business OR the real estate.
3. Clarify roles, work expectations and compensation.
A clear definition of roles (especially if there are multiple siblings) is critical to success. Very often one sibling has a gift for relating with people while another has a gift for administration. Or one is a leader and another a follower. If roles and expectations aren’t clarified there will be friction and resentment. While it may seem harsh, a requirement that siblings are able to work with each other should be considered. In cases where there are an equal number of siblings or cousins and each has equal shares, I ask my clients to tell me how the kids will break the eventual “tie.” Sometimes they respond with “we all get along” so that isn’t something to worry about. I find that unacceptable because business issues inevitably create disagreement and if they can’t be resolved everyone suffers. There are governance mechanisms that can address this issue.
4. Be clear about the role of spouses.
My personal preference is that spouses not be involved. But that is unrealistic. However, even if they are not involved, their influence can often lead to resentment when one owner shares a frustration with their spouse about another owner. The problem arises when that owner fails to share when the frustration has been resolved and over a period the spouse just builds up unresolved resentment. This often happens when it is perceived that siblings are not sharing the load equally.
5. Be clear about how siblings will exit the business.
In the event relationships break down or one sibling is ready to retire, and the other is not, how do they get out? I personally like a buy – sell agreement with a “Texas Shoot Out” provision. This provision is fairly simple: If I offer to buy you out and you decline, I must be willing to sell my shares to you for the price I offered you.
6. Have a clear development plan.
You should have a clear path to ownership and this should include demonstrated competency in the key drivers of your business. This should necessarily include handling all aspects of funeral directing but also business management. How are you going to develop your kids to take on ever increasing responsibility? I think of this as the “John the Baptist” concept. On seeing Jesus, John the Baptist said to his disciples: “I must decrease but He must increase.” So it should be when a child succeeds their parent. It is not fair for you to call someone like me when your kid is 45 to tell me he or she is “not ready” when you have never shared the company financial statements or how you make decisions. Following is a development plan I would use:
- Year One: Apprentice training
– Funeral directing
– Funeral arranging
- Year Two: Demonstrate autonomy relative to care for families
– Be able to independently function in the funeral director role
– Year three: Begin to sit in on family management meetings
– Interact with vendors
– Provide input on financial and staff decisions
– Take on responsibility for an administrative function
- Year 4 and up: Continued development in all aspects of business
– Visit and observe other non-competing practitioners
– Identify and execute an improvement project for the business
– Find ways to grow business
– Develop an initiative like:
– Preneed, pet and after care, etc.
– Undetermined year: Assume responsibility for management
– Send mom and dad on extended vacation
7. Determine the financial terms of transferring the business. Examples include:
– Children buy you out
– Full market value
– Discounted value
– Business establishes retirement system for you
– You give them the business
– A combination of above.
What to do if you don’t have sufficient retirement.
It is common for parents to come to me for succession planning without having established a good retirement plan. This is, perhaps, the most critical element of what I offer as a “true” succession planner. Frequently, the reason they haven’t been able to set up a decent retirement plan is because they have been raising a family and putting kids through college. What they don’t know is that one of the benefits of owning your own business is that Uncle Sam has ways for business owners to catch up and establish a strong retirement fund later in life. Depending on a couple of factors (one of which is time) it is possible for me to develop a succession plan that enables them to, effectively sell their business twice. FBA
Alan Creedy is a Certified Exit Planner (CExP) with more than 35 years’ experience working exclusively in the Funeral Profession. “He knows a thing or two, because he has seen a thing or two.” His website at funeralhomeconsulting.org is considered one of the top online resources for funeral home owners and funeral directors.