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Why Your Children Will Never Take Over the Family Business

Most business owners create a business with the belief that their children will follow in their footsteps to preserve their legacy, without taking into consideration that their children may have an entirely different vision of their life with a passion for another line of work.
This was the case when the founder of a medical device company assumed that his son would take over his business which he had built from scratch and poured his life and dreams into. The owner had a passion for developing top-notch medical devices that supported the lifestyles of its end users and was eager to hand over his hard-won business to his eldest son. His son, however, had his sights set on becoming an architect and building innovative structures. While they both shared a passion for design, the two had entirely different goals.
As their M & A Advisor, we first needed to help the business owner identify the obstacles of transferring or selling his business so we spoke with his son to find out whether he was ready and willing to be included in his father’s Exit Plan. Having grown up with the business, the son had watched his father go through the roller coaster ride of this company’s regular business cycles: Some of the challenges included: the competitive bidding process for medical device companies, which put a strain on the business; the unstable nature of the healthcare industry; and the lengthy reimbursement cycle. With all this in mind, the son expressed that he had his heart set on loftier goals and had little interest in taking over his father’s business. He said he was interested in making his own mark in the world and building his own legacy separate from his father’s company.
Having already achieved a certain lifestyle that he was not willing to part with. In this case, he would have had to put some of his interests on hold to sustain the business during hard times. This is a common factor that owners fail to observe: Depending on the business, the income generated may not be enough to support the lifestyle the second generation envisions for themselves or their future family.
In evaluating the pros and cons of transitioning or selling a business, we help sellers identify whether the next generation, who they have chosen to replace them, actually have the skills to run and manage their organization. In some cases, the designated successor prefers to work for the organization, rather than be a part of its leadership; being an entrepreneur is not for everybody.
Additionally, we fully vet the successor is to determine whether they have the ambition, motivation and drive to successfully manage the business through normal business cycles. If they are only focused on profitable cycles and not prepared for down cycles, the business will probably not survive its first five years under the new management.
Working with owners of middle market companies, we determine the best possible Exit Strategy and Succession Plan for their business, taking into account all the factors that may affect their business’s sale or transition. If they want their children to take on a management role in their business, we verify whether that the son or daughter are onboard. If everyone agrees with this course of action, then we can help the successor(s) line up the appropriate training, ensuring they have what is required to effectively run the business.
When the son or daughter, who are already working in the business, choose to leave the business, we can help the owner through the transition process, determining the best solution for transferring the business.
Staking one’s hopes and dreams on a younger generation, therefore, does not always work out the way an owner envisions it to be. To ensure a smooth transition, it is always helpful to have a skilled M & A Advisor on your team to keep the family intact with the least possible impact on relationships after a transition of ownership.
For more information, contact Ric Hepburn at: ric@citiusma.com for a confidential conversation.