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More Than Money:  The Price Successors Pay to Take Over the Family Business

As the baby boomers age, we are seeing more and more businesses transition to the next generation of owners.  While being selected as the heir apparent might seem like a universal positive, there are many negatives associated with being the chosen one.  As the owner of a business that is in the process of changing generations, it is important to remain aware of these factors.  

When you transition your business to your children, you may have gifted them stock and they may have purchased some equity along the way.  In addition to this monetary compensation, there are often non-monetary prices that children taking over a family business have to pay.

1. A Loss of Privacy

Nothing will make you more interesting to  employees, other relatives, and company affiliates, than to be named as the one destined to take over the business.  All of a sudden, everyone will be interested in your love life, your desires to have children, in what town you’d like to settle down in, and your family relationships.  You will be on display like never before.  

2.  Increased Family Conflicts

It is an unfortunate fact that family transitions can create family conflicts.  While a parent was in control of a business, family members probably didn’t question the strategic direction or choices that were being made.  When the company is in transition, however,  other family members, even those that had no interest in taking on a leadership role, feel as though they have some say in making management decisions.  This can get even more heated if the business begins to falter a bit under the watch of the new manager.  

3. Loss of Alternative Career Choices

A move into the family business may mean giving up on a career that you find more attractive or rewarding.  And while it is not impossible to move out of the family business into another job if you change your mind, it is very difficult.  You might also be giving up on financial rewards of other career choices, especially as you are building equity in a business.  

4.  Living with a Level of Risk 

Let’s face it – a desk job at a CPA or a law firm doesn’t often require you to risk significant amounts of personal capital.  As the new head of the family business, you will be assuming a lot of risk.  You will be making decisions around large capital expenditures, the future direction of the business, the assumption of debt, and growth into new markets or products.  

If you are the current owner of a business and looking at the next generation to take over, be aware of the “costs” associated with the transition.  It is important to have children that are interested in the business get exposed to all parts of the operation before they make any permanent decision.  Once they have been exposed to the company, have a frank conversation about their interest in taking over in a management role.  Be clear about the personal toll the transition can take and be open to a “no” answer.   If there is not compete buy in and enthusiasm from both generations, the rewards of the transition and the business will suffer.

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