It was time for Ned to retire from the family business. But Ned didn’t have an exit strategy, so he came to us. He and his wife, Joanne, had three children – two sons and a daughter. All three siblings were married. All three worked in the business with Mom and Dad. It was a profitable business. Revenue was $8 million per year.
Our vocational psychologist interviewed each member of the family – father, mother, the three children, and each of their spouses.
Joanne was a delightful woman who referred to the business as “the monster.” She had made a rule that at family gatherings and holidays, no one was to talk about the business. This was really hard to do because everyone was involved in it.
Joanne wanted the business sold. In assessing the family members, we discovered that the daughter and the son-in-law, who were a number of years older than the sons, had done well. They had been well paid by the success of the business and were at a point in their lives where they weren’t that interested in owning it or even running it. In fact, they were really kind of looking forward to retirement themselves. They had a nice nest egg and felt they could retire.
Wally, the elder son, described his job as basically making sure that the vehicles used in the business were washed. He ran the car wash, which was part of the business. He had never read a financial statement. He had never been in any kind of a managerial role. He knew almost nothing about the workings of the business. He definitely wasn’t a candidate for taking over the management.
Frank, the younger son, was the head of a small division of the company. It was similar to a customer service business. This division lost money every year, mainly because they charged for a product that they distributed but not for a portion of their service.
“What do you like most about your job?” I asked Frank. He said he liked to go out on calls to deliver this product.
He was often invited in to have tea. That was his favourite part of the job. Frank wasn’t really interested in managing anything. And he had very little knowledge about how to run the other aspects of the business.
All of these members of the family were in the business and receiving salaries far and above what they could have demanded in a competitive environment. All of them were well off financially.
Dad was the only one fit to run the business. If somebody bought the business, they wouldn’t keep the siblings.
This family was in distress. They didn’t have any kind of an exit strategy.
The vocational psychologist and I got the whole family together. We talked about “the elephant in the room.” We suggested that they schedule a family meeting to discuss all of this, including the psychologist’s reports and evaluations.
At that meeting I laid it out for them.
“Basically, the dilemma is this. Ned, you can’t transfer this business to your children. There’s no one who is either capable or willing enough to take it on. If you sell it, Wally and Frank and their families are going to be seriously affected. They won’t have jobs. At the very least, they’ll have to take about a two- third cut in salary. If you keep running it, Ned, at some point you will no longer be capable of doing it. So, what do you want to do as a family?”
A very interesting discussion took place. Basically what they ended up saying was, “We’ll do what Dad wants to do.”
“I don’t want to create any problems for my children, so I’ll just keep running it,” Ned said.
That’s what they came up with.
Unfortunately, they had put themselves in a very difficult position. There weren’t too many good options as far as this family was concerned.
The business probably could have been sold for a nice sum of money. Ned and Joanne would have been pretty well off. The older sister and her husband would have been okay, but the two younger boys – and they weren’t that young; Frank and Wally were pushing forty – would have been in trouble. They didn’t know how to run the business. They wouldn’t have been able to get jobs anywhere else that paid them anything like what they were making. They would be fired if someone else came in.
Or they would have to take a significant cut in pay.
Another possibility for Ned would have been to devote some time and energy into bringing Frank up to snuff.
However, to get him into a position to manage the business would take years at best.
At the end of the day, it was agreed that a professional manager would be hired to operate the business.
The best time to think about selling your business is when you don’t have to sell it at all. If you do your thinking and planning ahead of time, you can develop a good exit strategy and the business can be sold successfully when the time comes. If a crisis happens, you are prepared.