A tale of two business owners: Which family would you rather be in?

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As business owners get older, the thought of what might happen after they transition out of the business will occupy more of their thinking.

Typically, owners have little if any experience selling a company. They’ve spent decades building it and start thinking about selling only near the end. This is one of the reasons why 20 per cent of owners sell successfully and 80 per cent of businesses that go to market do not sell.

Younger owners (age 50 to early 60s) have some time and are more open to preparing the business for sale. To older owners (age 65-plus), the idea of doing more work or changing the way they do things is not high on their list. So the business goes to market as is.

Regardless of the owner’s age, a better-run business will always have a greater chance at selling successfully and for more money.

One way owners can focus themselves and ensure a better outcome to their transition is by considering their legacy. They need to question what kind of statement they might leave to future generations by the actions taken while building the company and toward the end of their time running the business.

Here are two very different scenarios from the perspective of how a family business owner might be perceived by future generations.

Legacy A, something to be proud of

Our parent/grandparent (your name here) was a successful business owner. They grew a tremendous business from nothing. All the while making sure family, staff, customers and suppliers were well taken care of.

We all have fond memories of many experiences enjoyed with our parents/grandparents, from holiday dinners to weekends at the cottage and incredible vacations to exotic destinations. They always made sure to be with us and to participate. Work was second, family came first.

One way owners can focus themselves and ensure a better outcome to their transition is by considering their legacy.

Charity and good deeds were part of the fabric of the company and their life. Integrity was the basis for all negotiations, encounters and relationships. Running a business with the utmost integrity regardless of whether it was an internal or external resource is still referred to as the benchmark within the company.

They planned ahead, and when it was time to transition the company, all was in order. People and processes were in place. Accounting was thorough and up to date. Contracts in place. Strategies for the future growth of the business were established and being executed.

Regardless of whom the company would transition to – family, outside buyer or staff – the ship was well equipped and moving in the right direction. By the time the transition began, key managers were trained and already excelling at their new responsibilities. It was a smooth and mostly stress-free experience; in a business transition there will always be something to upset someone.

As descendants, we are lucky to have the choices we do today. We are financially set and equipped to follow in their footsteps in business and in life – to live life to its fullest, give generously and appreciate our good fortune every day. We are the proud stewards of their legacy and continue to live by their example.

Legacy B, not sure you’d be proud of this

Our parent/grandparent (your name here) was a successful business owner, loving what they did and “dying with their boots on.” They couldn’t see themselves living any other way and never took the steps necessary to transition the company properly. We talked to them about it all the time and nothing ever happened. Everything would be taken care of tomorrow.

As for memories, our parent/grandparent was always working. Never had the time to take holidays. Family time was had grudgingly. We made excuses, as they loved what they did. Real memories of time spent with them are few and far between. They could have easily spent a week here and there with us but didn’t. Now it’s too late.

While we admire their passion, the events that happened after their sudden and unprepared-for passing have devastated our family. Legal and financial frustrations have torn our family apart.

The company revolved around them and no one was really trained to take over – not family or other. The business started to falter the minute word got out that they were no longer running things. Customers got nervous, vendors demanded quicker payments and staff began to panic. No leader – or at least no capable, prepared, true leader – could step up. The dream that the children would take over was a non-starter, as some of us were not interested and the others not qualified.

Competitors and buyers began to circle the company like sharks smelling blood. Our surviving parent/grandparent didn’t know what to do and chose to take the first offer that came along. Some of our family members who worked in the business and a few long-time employees were immediately let go.

The cash received was nowhere near what our parent/grandparent had assured the surviving spouse would have to live on. Fortunately, our family rallied and we are taking care of them as family should. But it has been an unbelievable strain on everyone. It could have been avoided.

As for future generations sharing in the success of our business, we have all recognized that while it would have been nice to have some financial assistance for us and future generations as part of our own legacy, we do not always get what we expect.

We will succeed on our own and ensure we don’t make the same mistakes as our parent/grandparent.

Conclusion

Remember, as the owner of a family business, it’s up to you to write the story. You can choose how you will be remembered.

Try this exercise. Write your legacy as you wish it will be:

• As it pertains to your family. Then make a list of the key personal family actions you will need to take to deliver on this.
• As it pertains to your business. Then make a list of the key business actions you will need to take here as well.

Eric Gilboord is Chief Executive Officer of Toronto-based WarrenBDC Inc., a management and business-selling consultancy specializing in first time business sellers. He is a speaker, a best-selling author with four books on growing and selling companies, and the creator of hundreds of articles in national newspapers, magazines and online. More than 21,000 business owners follow his advice via his weekly emails. He is the creator of the online program Sell Your Business 4 More. Learn more at www.warrenbdc.com and www.ericgilboord.com

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