Family Business Conundrum: What to Do With Children Who Are Not Involved in the Business

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I have recently been working through a myriad of family business transitions, and an interesting theme ran across too many of them to go unnoticed. The issue centered around a struggle of how to best treat the children.

Here are a few facts that were apparent in all instances:

  1. These transitions involved the first generation transferring to the second generation (parents transitioning the business to their children).
  2. In each instance, both parents were actively involved in the day-to-day operations of the business.
  3. There were siblings that currently worked in the business and siblings that currently did not.
  4. The parents’ intent was to treat their children equally.

The struggle the parents felt about what to do with their children who were not currently involved in the business was the most apparent issue. Interestingly enough, in almost all cases, the parents had built up some liquidity and assets outside the value of their business. Even in cases where there were plenty of assets other than the business to ‘equalize’ things, the parents still struggled with how to handle the business ownership. This was consistently true, even in cases where the relationship amongst the siblings wasn’t necessarily the healthiest. That dynamic seemed to exist more prevalently when there were brothers involved. In cases in which sisters were involved, the relationship dynamic seemed to be less of an issue, at least on the surface.

So what about transitioning the business to some, but not all, children made the decision so hard? Was it the concern of feeling like the parents weren’t treating their children equally?  Were their children even educated about what it meant to be a business owner? Did the children not working in the business fully appreciate or understand what it meant to run a business?

I believe the answers to these questions and more is probably yes, yes, and yes. All of these factors matter. This is one of the reasons why starting early and recognizing the emotional issues in a family business transition is so important.

Steven E. Staugaitis is a director at Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email or 215.441.4600.

 

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