Rescuing a Child with the Family Business?

You may be surprised to learn that more than 90% of American businesses are family businesses, according to Entrepreneur Magazine. The term “family business” is defined as a non-publicly traded business that contains two or more family members.

It’s not unusual for a patriarch or matriarch to dream of one day including one or more adult children in the family business, especially if it’s successful. Many consider the business their legacy and are quite proud of it. Bringing in the next generation might be considered a logical step to solidify that legacy. Many of us know of family businesses that thrive for generations.

But there are many psychological, economical and relationship issues to consider when bringing loved ones into the fold. Is your adult child well-suited for the role that you expect her to play? What exactly is that role? Will she start from the bottom and work her way up, or will she immediately work from the executive suite? What is her educational and work experience to date? How will other key employees receive her? How has your relationship with that adult child been over the years? Can it survive working together?

Anecdotally, I’ve seen several instances of a child being forced into a role that he isn’t suited for. Dad, for example, might be great at sales, but Son might be better working in operations. When counseling family businesses, I usually suggest that all parties take certain aptitude and profile tests such as Strengthsfinder and Kolbe. Both provide valuable insight into a person’s proclivities.

Yet another issue to think through is who will train and mentor the young family member. Not only is it tough to mentor anyone, nonetheless your own flesh and blood, but you need to honestly assess your patience and tolerance as well as your adult child’s disposition and capabilities.  Perhaps another person in the organization is better suited for this role? Are they willing to do it? Do they see your family member as a threat?

Sometimes the family business is used as a life preserver for a drowning family member. Drama often ensues when the family business is used in this manner.

Perhaps the child was fired from several jobs or has been unemployed for a while.  The parents might believe that by creating a position inside of the family business the child will find a niche and thrive. This rarely happens. There’s usually a reason why Son or Daughter was fired from prior positions, and those reasons are likely to not only persist but also intensify in the steaming caldron of a family business.

I recently met with a client who owned a successful multi-million dollar operation that he took over from his father. “I thought one of my three children would one day run the shop,” he confided, “but none were really equipped to do so. I brought them all in at one time or the other, but when I did they started at the bottom and had to work their way on up to the top. None of them worked out. So eventually I sold the business.”

This client’s story is quite common. Success magazine recently published a report indicating that fewer than 15% of family businesses survive to the third generation. That statistic is important to note if you are the patriarch relying on future income of the business for your retirement.

Those family businesses that employ non-family members must be cautious as well. Long-term employees who are critical to the business’ successes may look askance at the youngster who hasn’t paid her dues but receives many privileges. This can create disharmony which can lead to the loss of those key employees. Consequently, it’s usually a good idea to communicate with those that matter, soliciting their input.

Non-family owners complicate matters as well. Here the ownership interests might be governed by shareholder or partnership agreements. Assuming that nepotism is not prohibited, bringing on a competent family member on one side might encourage other shareholders to ask the business to employ their own family members who may not be right for the role. Business owners would be wise to keep that Pandora’s Box closed.

As you can see, there are many issues to address prior to asking a loved one to join you in your business. Being intentional and thinking through the myriad of issues will assist in arriving at the best outcome, whether that result is bringing your son or daughter into the business or deciding against it.

The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.

© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.

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Craig R. Hersch

  • Senior Partner,
    • Sheppard Law Firm
  • Florida Bar Board Certified Estate Planning Attorney / CPA
  • Editorial Advisory Board Member,
    • Trusts & Estates Magazine
  • Founder & Board Member,
    • State Chartered Trust Company