Exiting the Family Business Is as Tricky as Leaving Your Lover
Paul Simon famously sang that there are fifty ways to leave your lover.
In his words, “The problem is all inside your head. . .The answer is easy if you take it logically. I’d like to help you in your struggle to be free. There must be fifty ways to leave your lover.”
Well said, and there are probably more than fifty ways to exit the family business. However, exiting the family business is often more complicated because an exit from the business is not, in most cases, an exit from the family. The choice of an exit path matters. Exiting well and remaining happy at family holiday parties matters.
Why would someone want to exit the family business?
There could be many reasons—even 50, but here are a few.
Belief that some family employees are favored and that employment is not merit-based.
Belief that the time does not sync with family member’s “best years.”
Belief that contributions are not respected.
Desire for a work/life balance that working in the family business cannot afford.
Experiences stress will working in the business that affects mental health.
Feelings that compensation is unfair.
Frustrated by the lack of advancement in the family business.
Frustrated by the business’s stagnation.
Need to relocate for personal reasons, e.g., spouse’s or partner’s career, and working remotely is not the right solution.
Other responsibilities, e.g., caregiver or young children, elderly parents, ill spouse or partner) that take priority.
Passion for a different industry or field than that of the family business
Sibling rivalry
“Exiting well and remaining happy at family holiday parties matters.”
Some Suggestions for Advisors in Working on Exits
Of course, the emotional issues that arise during a family business exit can be very strong. It is never just about the money. Feelings of guilt, fear, anger, rejection, entitlement, and lack of gratitude bubble under the surface. Those emotions cannot and should not be ignored. But they should be managed.
Here are 10 suggestions for advisors. (Not 50, I know!)
Encourage the client, before making any announcements or resigning, to openly, honestly, and privately communicate the concerning issues with the major stakeholders.
Assist clients to look objectively at the reasons for exiting and whether the issues facing them can be resolved without leaving.
Help clients recognize that the opportunity to work in the family business is one to be grateful for, and that the experience that has often been life-changing and, almost always, important.
Suggest that the client consider phasing an exit over time or taking a sabbatical before announcing the decision to exit the family business.
Explore intrapreneurship with the client. For example, consider having the family business create a subsidiary, owned by and funded by the common pot, that the client could run.
Work with the client to design what an ideal exit plan would be, keeping both the client and the business goals in mind, especially designing an agreement for the timing of the exit.
Guide clients to negotiate with a win/win mentality.
Take an active role in the transition. If the client is in a position of authority, make sure to plan out the succession, giving real thought to issues that could and will arise. A well-considered transition plan, carried out successfully, projects stability to employees and customers, as well as to bankers who trust the client’s management abilities.
Seek legal, financial, and tax advice.
Know that it is possible, if not typical, for a client to leave employment and still retain ownership.
And . . . here are 10 more you can read on the Family Firm Institute Blog. (Still not 50, but I’m getting closer!)