Business transition Dodge the pitfalls of family business transition

Middle-market business transitions are rarely simple, and family business transitions are among the most complex. An acquisition, sale, restructuring, or leadership change at a family business can bring forward the best and the worst of relationship dynamics across and between generations. That can make transitions harder to plan, start, and finish.

If you are preparing for transition at your family business, consider these common pitfalls that can derail what could otherwise be a positive experience—and advice for how to keep the experience positive.

Prevention: Thinking and planning long-term

Transition planning often seems to fall to the bottom of the to-do list. By not carving time out of their busy days to address transition, owners are forgoing important early planning and structure setup that can maximize value and ensure the business enjoys continued success post-transition.

Too often, family leaders assume they will continue running the business forever. “The senior generation just keeps going and going and going until one day they wake up with the epiphany, ‘Hey, I can’t do this anymore. I don’t want to do this anymore, so I’m going to try to think of my succession plan now,’ which is why a lot of these transitions happen very quickly,” says David Herritt, Senior Managing Director of Truist Wealth Center for Family Legacy. “They’re not thinking about it when they have the runway to think about it.”

Bringing in external advisors as counsel to better prepare for transition can help prioritize planning and prevent waiting until the last minute.

Prevention: Take a wide view of the stakeholders in a transition

Mature family businesses are harder to manage than newer ones. Herritt shares an example that shows why: “I work with a family right now that was founded by the matriarch and patriarch. There were six children, four who worked in the business, two who didn’t, but they were all on the board. And now, we’re at the cousin consortium level, and there are three working in the business out of 17, and only two of them are sitting on the board.”

Truist helped the family see how their finances would be affected as their family expanded over generations and encouraged them to dedicate time to work through the more complicated planning challenges that come with a bigger family.

“You have all these passive shareholders you didn’t have with the other two generations, and trying to keep them engaged is difficult,” Herritt says. “Transitioning to be professionally run going forward is pretty attractive,” he adds.

Prevention: Acknowledge the interconnection, and set rules of engagement

“Leaving work at the office” is not a strategy with a family business. Conversely, going to work to get away from family stress is not an option either.

Herritt says, “You’re wearing your parent hat at the dinner table at Thanksgiving, and then you put on your CEO hat when you get back to the business on Friday. That’s quite a stretch you have to consciously make.”

It’s impossible to completely untangle work from family. Russell Sanders, managing director, Business Transition Advisory Group at Truist Wealth, advises, “It’s dynamic and multidimensional. The moving pieces need to fit together so the family continues to function as a family, and the business continues to function as a business.” Outside guidance from Truist Wealth or other trusted advisors can help families put governance in place before, during, and after a transition. “It’s no simple task to set ground rules, handle business complications, and make decisions to run a family business, and also be responsible for keeping the family peace during the holidays,” Sanders says.

Prevention: Focusing on shared family values

When families and their businesses grow bigger, new experiences and viewpoints arise. But it’s possible to coalesce around a set of values that binds the family and business. Sanders elaborates, “There’s a mysterious glue for family businesses around values. For some, the business itself is the family, and for others, excelling at entrepreneurship or being a core community business with strong employee ties are really the family values at work.”

Such shared values can be an important tool to frame transition considerations. Herritt says, “Just as leaders need to stay anchored in long-term goals, it’s no different in families, and it’s important to understand what those shared values are. Families have to use their shared values as a springboard to every decision they’re going to make around their vision for the future, whether it’s creating their corporate mission statement or their family mission statement.”

Prevention: Engaging outside advice

Running a private business takes a good measure of self-reliance and confidence in one’s problem-solving abilities. Family leaders can carry this same attitude into transition—and that’s not a good thing.

“Family leaders have an independent mindset with a ‘can-do’ attitude,” says Sanders. “But as you’re beginning a transition, you need to understand there are many facets to it, on both the personal and the business side, and that it requires a certain amount of expertise.”

Sanders’ advice? “Appreciate that complexity and understand it’s OK to reach out to outside advisors. You get one shot to do this right, and you don’t want it to spin into a direction you didn’t expect. You need to build a team of advisors that’s deal-savvy and has transition experience for what lies ahead.”