CHICAGO — When it’s time to bid farewell to a self-service laundry business, the owner’s exit strategy may involve selling the operation or having a family member take over. Whichever is in play, there are some keys to simplifying the transition.
In Part 1, we looked into selling a business to someone we’re not related to. Let’s conclude today by looking at business transfers within a family.
SELLING OR GIFTING TO A FAMILY MEMBER
In contrast to an outsider sale, a family transfer often focuses more on preserving the family legacy and maintaining good relationships, while placing less emphasis on immediate financial gain. This process can be more emotionally charged and may benefit from family counseling or mediation to align everyone’s goals and expectations.
“Small businesses are incredibly diverse, and most are family-owned. All families have unique members and dynamics,” says Jake Pollack, a partner in the Dallas law firm of Shackelford, McKinley & Norton, who specializes in estate planning, family-owned business transactions, and estate and trust litigation. “It is difficult to create a template that would apply in all instances, which makes it even more important to utilize a team of trusted advisers to identify pertinent issues and challenges and facilitate the process.”
“From the beginning, focus on teaching (your successor) everything they need to know with the goal of eventually working yourself out of a job,” says Justin Koh, CEO of Advent Cleaners LLC, which operates Al Phillips the Cleaner and Thrift D’Lux in Las Vegas. “Once they step into the leadership role, allow them the space to seek your advice or find their own solutions. This balance of guidance and independence is what helps them truly grow into the role.”
Family dynamics can affect pricing and payment terms. The seller may, for example, offer more flexible financing options or a longer repayment period to help the family member succeed.
Things that would never matter in other business situations somehow work themselves into family succession, according to Mary Kelly, Ph.D., author of the best-selling “Who Comes Next? Leadership Succession Planning Made Easy.” Things like whether the older brother should have first dibs simply because they are older than another sibling are considered, when they really do not matter.
“Any transfer of a business is a business transaction and therefore must have a contract, family or not,” she stresses. “That is there to prevent misunderstandings. Families are more likely to have misunderstandings, which means having a contract is even more important. If you want the family to stay close, be clear about expectations and put those expectations in writing.”
“Successful business successions typically depend on an agreement, a plan, and adherence to the plan,” Pollack says.
If a family member is taking over, Koh says, they need to be ready to assume the financial responsibilities and have the skills to manage them effectively.
“Structuring the transition as a real purchase, where they issue a note or even secure a loan, can help them treat it like any other business acquisition,” he says. “This approach gives them a deeper understanding of the commitment and resilience required to succeed as a business owner.”
How might situations where family members may not be ready or interested in taking over be handled?
“If that family member is passionate, resilient and capable, but not yet ready, remember that getting prepared doesn’t happen overnight,” Koh says. “It requires years of learning everything from operations and maintenance to customer service, production, marketing and finance. That said, sometimes the best way to get ready is by diving in … and paying the ‘tuition’ along the way.”
“If they are not 100% excited about taking over the business, they are not the right person,” Kelly asserts. “Find someone else, even if that means hiring or selling to someone outside of the family.
“If they are excited about it and need experience, you can stay on to coach them, or you can increase their level of responsibilities now to help them get ready.”
Establishing a clear line of authority is critical to the success of a succession plan, says Koh.
“If you appoint your child or family member to lead, they need to truly be in charge. Offer advice, but avoid overstepping—that can discourage them and create confusion within the organization.”
“I generally counsel my clients to allow the successor(s) to handle the business as they deem best and be ready (and) willing to serve as a resource,” advises Pollack. “It is natural for the successor(s) to believe that there is a newer (or) better way to do it.”
“Be ready to let your successor stumble and find their footing,” Koh says. “If they’re choosing to step into the family business rather than go elsewhere, they’re likely driven by independence and a strong work ethic. Resilience is one of the most crucial traits for any business owner.”
Have a question or comment? E-mail our editor Bruce Beggs at [email protected].
