Do you work in a generational business?
Maybe you’re the founder, and your kids work in the business.
Or maybe your Mom or Dad started the business and you’re working hard hoping to one day take over & run the business the way you think is best?
Sounds simple, but you know it’s not.
Family dynamics screw up businesses all the time.
This week on the High Level Thinking podcast, Andre’ sits down with business coach Dan Zimanski to discuss why generational business often fail and what you can do as a family to prepare for this change.
Several of Dan’s clients have transitioned the business from Mom & Dad to the kids with very large payouts. In other words, everyone was happy.
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Executive, Leadership & Business Coach
Why Do Generational Businesses Fail?
Issue #1 – Family Dynamics
Dan explains that the number one thing holding back generational businesses is family dynamics.
This can mean a number of things.
In some cases this means that the parents have trouble giving up control of the business or do not trust their children to take on the responsibility of running the business.
This could also mean that instead of operating and making decisions like a business, people tend to make decisions like a family.
This is why it is important to always ask “What is in the best interest of the business?” when making tough decisions.
Families may also find it helpful to work with business coaches like Dan to help them have those hard conversations and make the best decisions.
Dan encourages families to have a discussion about each member’s personal goals and then create business goals that align with the family’s goals.
He also explains that each person should have a clear role in the business and should be held accountable for doing the work that comes with that role.
Issue #2 – Wrong or Unwanted Roles
The children who are joining the family business may not be suited for the roles that they are put in or may not really have a place in the business at all.
It can be hard for parents or children to accept this fact. However, if the child does not want to be a part of the business, it would not be in the best interest of the business for them to take over.
Issue #3 – Generational Beliefs
In some cases the children come into the business with new ideas, knowledge, or technology that they would like to implement in the business while mom and dad are still stuck in their ways and wanting to do things the way they have always been done.
It is important for both parties to consider the impact of these changes and not just make a decision based on their own wants or generational beliefs.
Dan gives an example of a family-business that dedicated $2,000 per month to advertising in the Yellow Pages for years and worried about pulling the ads even towards the late 2000’s.
After doing some research, the family discovered that almost zero of their leads were coming from the Yellow Pages and they were able to confidently make the decision to put the money towards digital marketing instead.
Issue #4 – Structure of the Business
Dan explains that another common mistake families make when passing a business from one generation to the next, is not structuring the business properly.
It is important to have wills, estate plans, and insurance policies in order long before it is time to hand over the business.
Think to yourself, “If something were to suddenly happen to me today, would everything be in order for my children to take over?”
This is why it is important for parents to have a strategic exit plan.
This includes documenting the systems and processes of the business like the sales process or how the company manages its finances.
This also includes the parents deciding when and how they will leave the company.
Dan advises families to develop a resource team that includes a CPA, an attorney, an insurance agent, and possibly a business coach.
This team will work with the family to ensure that everyone’s goals are being met and that the decisions being made are what is best for the business.
The exit plan may also include how the children will acquire the business. Some parents choose to hand the business down to their children, while others sell the business to their children.
Dan likes the idea of an incentive program where the children can earn shares or stake in the company over several years instead of being handed the business.
It is also a good idea for the parents to consider staying with the company in an advisory role to offer guidance when needed.
How to Be Successful in a Generational Business
The most important things to remember when making plans for your generational business are:
- Keep everyone’s personal goals in mind and align business goals to meet those needs.
- Create clear roles for each family member and hold each member accountable to their role.
- Establish a plan for the transition including an exit plan and legal documents.
If you would like to speak with Dan about your business goals, you can reach him at (504) 957-8082 or at firstname.lastname@example.org