Scott Snider is the President of Exit Planning Institute, the authority on Exit Planning education.
Most people would tell you not to go into business with family or friends. I am not most people. In fact, I passionately disagree. I’m in business with my dad—we’re partners—and I’ve built a leadership team that includes some of my closest friends.
I’m not alone in my thinking either. According to Family Enterprise USA, 87% of American businesses are family-owned or controlled.
Make no mistake, though. Being part of a family business isn’t easy, and I’ve seen many family businesses fail and friendships fall apart. The reasons may vary, but I find they all have one thing in common: lack of planning. If you do decide to keep it all in the family or between friends, you need to be deliberate—this is especially true if you want to pass on a family business to the second or third generation.
While I’m more like generation 1.5 rather than a 2nd generation owner, my perspective is twofold. First, I lean into my experience with my dad and how we navigate running a business side-by-side. Additionally, our company supports a 5,000-plus network of certified exit planning advisors who advise business owners for their eventual exit. A significant amount of these exits are centered around transferring a business from one generation to the next. Needless to say, I’ve seen owners get it really right, and owners get it wrong and suffer greatly.
Playing The Odds
If you’re not careful, going into business with family or friends can be a lot like gambling in Vegas. It’s risky for your relationships. Especially when you’re different, like me and my dad. But we knew that going into our business venture.
My dad spent 30-plus years working for someone else before becoming an entrepreneur. I have never worked for anyone else. My dad’s generation of entrepreneurs started a business and have stayed with it for 30-40 years. I plan to start and sell numerous businesses until I retire.
Instead of seeing your differences as deficits, look at them as strengths. Running a business is multifaceted and, generally, no one is equipped to manage every single aspect. Divvy up your responsibilities based on your strengths. This way, it’s more than just hedging your bets: It’s like being able to cover the entire roulette table.
For instance, I add value to the business by coaching and empowering employees, especially the leadership team. My dad, on the other hand, is the numbers guy. He likes data and financials, so he takes a valuable strategic planning role and makes recommendations about our business operations.
Team Bonding: Coaching And Communication
Communication is one of the core values of our partnership. To keep ourselves working together toward the same goal—growing the value of our business—my dad and I put a lot of effort into being a good team.
With the help of a business coach, we began using a family business assessment as a blueprint for discussing the state of our business, not to mention the state of our business partnership and personal relationship. There are 12 yes-or-no questions to ask each other. If we differ in our responses, then it’s a topic to discuss and work through. This assessment can be a great tool for you to use with a next-generation family member preparing to take over the business.
Leaders should be equally intentional in their personal relationships with family members in their business. Make sure to nurture our relationship outside of business. For example, we have an annual father-son trip, and we try to do things together outside of work that we both enjoy. This way, when you have a business conflict, you know that what you say to each other—the (sometimes hard) feedback you give to one another—all comes from a place of love and deep respect for what each brings to the business.
Assuming Nothing
In addition to the things that you should do to make the transfer of a family business successful, there are also some don’ts to avoid—starting with avoiding assumptions.
Don’t assume a family member wants to be in the family business. Don’t assume they know how to run the family business. Don’t assume they’re ready.
Ask the important questions:
• Do you want this?
• What do you need to prepare?
• Are you ready?
The next generation owner may not know the answers to what they need to prepare or if they’re ready. Have an honest and direct conversation, backed by an intergenerational succession plan that puts guardrails in place and allows the next generation to learn and prepare before taking the helm. Bringing in an outside adviser can help in this respect.
Every Family (Business) Is Different
I feel lucky: I’m not just preparing to take over from my father, I am his equal partner in the business. That means that not only am I getting the necessary training, but I’m also actively driving the future of the business with the benefit of my dad’s experience.
If you’re running a business that you intend to pass on to family when it’s time to exit, do yourself the favor of having intentional conversations now about that transition. While it’s likely built a great life for you, your business may not even be attractive to an heir. And, if it is, the next generation owner deserves to build competency and confidence leading up to the transfer so they can make the business their own—just like you were able to do.
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