Posting by Ed Kopf, Ph.D., Principal at BMC Associates
Erwin G. Krasnow, an Associate at BMC Associates, and I were recently asked to contribute an article to Radio and Television Business Report on the topic of selling a family business. Family businesses have historically been the primary owners of radio and television stations. With the consolidation of their industry, many family-owned stations are being sold to larger, often publicly owned, organizations. The editors asked us to provide some tips on how to assure that the sales benefit the sellers as families as well as business enterprises.
The insights we provided about selling a family-owned television station apply to other family businesses as well. The sale of any family-owned business is often quite literally a life-changing experience. It cannot be reduced to a standard commercial or financial transaction. In many families, the ownership of a business has played the central role for decades in defining personal identities, interpersonal relationships, and the family dynamic as a whole. Once the sale of a business is complete, the family may have an abundance of financial resources. But it may also be faced with a disorienting loss of social and emotional context.
What can be done to increase the likelihood of a happy outcome on both the human and financial sides of the sale? I’d like to share a quick summary of four strategies Erwin and I outlined for the broadcast industry publication.
1. Plan Ahead—Way Ahead—For Life After the Closing. The sooner the founders of a family business can clarify the ultimate destiny of their business, the better. If the guiding intent is to sell the business, there are steps that should be taken long before the actual exit. Some of these are of a strictly business character. However, there are also early preparations that are particular to dealing with a family business – and these can be critical to the family’s welfare. Those family members deeply involved in the business must confront the question of “What am I going to do with the rest of my life?” We have too often seen a founder’s adult children, in particular, left adrift when they are effectively “laid off” following the sale of the business. Even with immediate financial rewards from a sale, the second generation is often left ill-prepared to find a new way to achieve an independent sense of competency and self-esteem in a competitive economy.
For founders as well as their children, preparing for a long and fulfilling life without the business requires forethought and groundwork. Being prepared for “life post-sale” can’t be put off until after the closing of the deal. If possible, it should be a thread in planning and thinking for years in advance.
2. Bring the Whole Family into the Process. It’s clear that the sale of a business will affect the future of the entire family, as individuals and as a group. Often, business founders are conscious of this and give considerable thought to making the change work for them, their spouses, their children, and their grandchildren. Leading up to a sale, investment bankers, estate planners, and tax accountants provide essential help in trying to maximize the wealth generated from the sale and passing it on efficiently to later generations.
This planning process often involves only the founders (and, perhaps, their spouses). Assumptions are made about what will be best for the children – even if these children are adults with children of their own! This approach often leads to unintended consequences. For instance, children who are not consulted may wind up feeling betrayed by the sale of a company that they very much wanted to manage into the next decade, if not the next generation. Siblings can become resentful when one becomes a trustee with broad authority over trusts created from sale proceeds benefiting their sisters or brothers. All the members of the family may wonder how the sale will affect their relationships, especially if some have been working together at the company.
Ultimately, only the owners have authority to make decisions about the sale of their business, its timing, and its form. However, understanding the aspirations and anxieties of other family members whose lives will be changed forever by the transaction can make the process far more satisfactory for all involved. It also strengthens the family relationship to act in an inclusive and respectful manner. Whether it’s done one-on-one or through larger “family council” meetings, the value of inclusively and respectfully giving family members input over their own fate is inestimable.
3. Create a New Focus for Family Life. For many families who own businesses, the business is the stabilizing force that holds the family together and defines their relationships. It’s often difficult for them to disentangle their relationships as son and business subordinate or sister and shareholder. Even if family members haven’t worked directly in the business, they are likely to have heard stories and talked about it at the dining room table for much of their lives.
Many founders of family businesses were initially motivated by the desire to create a close family that not only would live together but work together as well. The sale of the business can undermine that goal unless a new focus for family attention and activity is created to replace the business. This could take the form of a family foundation, a vacation home, shared and managed by the family as a whole, or a formal Family Council that gives broad attention to philanthropy, recreation, and shared investments.
4. Get Professional Help. Selling a family business is most likely a once-in-a-lifetime proposition, which, like any other unfamiliar and important exercise, often demands expert assistance. The team of experts gathered might be comprised of familiar players, including attorneys, bankers, accountants, financial planners, investment advisors, and others.
Importantly, there is another professional advisor that should be considered to help deal with the often unspoken hopes and fears of the family. Family Business Consultants help develop long-term plans for the family in multigenerational firms, navigate critical changes like the sale of a business, and create and sustain family institutions that can provide mutual support and satisfaction even after the business is sold. A practical resource for locating such a family business specialist is their professional organization, the Family Firm Institute, based in Boston, MA.