Family business strategy

I'd like to hear from anyone whos worked to build a shop from nothing and successfully passed it to the next generation. Especially if your kids took it up a notch. What did you do? What did you emphasize to them about business as they were growing up? What do you feel did right/wrong? How old were they when they wanted to get involved?

If you took a business over from your parent(s) what got you interested? What made it successful? What education did you pursue? Do you feel like you compromised your goals or did you see it as a big opportunity?

As the recipient of such effort made by my dad, I now operate the business with my wife and kids.

My dad brought his three children into the business as soon as we began looking for income ( so pretty early) Dad wasn't stingy with our wages, nor did he over pay, but just paid a fair wage. ( Our actual pay was based on commission to encourage good work ethics and keep us interested in doing the job well) Which was enough incentive to get us interested in both doing the work and staying in the business. A few years after my siblings got married they separated from the business to pursue other careers. I stayed as the company changed from mechanic shop to tow service and now machining (machining and welding was always a minor service in the business) Dad also encouraged us to go for our goals in life and looked for ways to incorporate those into the business. That was part of the reason behind the evolution of the shop.

The business was started in a falling down filling station ( literally was in the works to be condemned when dad purchased it) my dad built the business from that building, his faith in God and only about a pickup box full of used tools mostly from auctions.

My dad recently passed, but he spent his last couple of years teaching my kids the business trades and teaching me how to operate the business along with treating my kids fairly as business partners rather than hired hands.
None of us ever pursued college because by the time we were graduated high school we were making more than any college graduates we knew in our age range.

What kept me there all those years (27 years so far) was two things, I loved my dad and working with him. The other thing was I was essentially my own boss, dad let me make decisions all along with the responsibility that went with every decision. And as I got older I was allowed to make bigger decisions.

At times I have been offered much better pay than this job offers, but I would be giving up the chance to give my kids the same opportunity and time with them. I'm not in business to get rich, neither was dad. If as the business owner your goal is to gain wealth, it won't work to bring your kids in, it costs too much time and effort. But if your goal is a family business where you can work and build together, it's the best thing you can do for you and your kids!

This business has grown a lot, we're now in a building we built together, with multiple properties also involved and available to expand on when the time comes. And far more opportunities than I have time for.

the most destructive thing to a family business (bar divorce) is sending the kids to university to become professionals .....once qualified ,working in huge glass offices with half acre desks makes it very difficult to come back to oil,grease and dirt floors.

john.k said:

the most destructive thing to a family business (bar divorce) is sending the kids to university to become professionals .....once qualified ,working in huge glass offices with half acre desks makes it very difficult to come back to oil,grease and dirt floors.

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...and when they get ahold of the business, drive it straight into the ground.

I've run an accounting business for 45 years ( makes me a hobbyist, don't kick me off ) and have watched and helped with family business transition for most of those years. Here are a few things I've learned- for what they are worth.

Parents need to realistically assess their children's abilities. Few parents are good at that. Sometimes too harsh but more often too lenient. The children need to enjoy not only the mechanics and details, but the process of managing employees, analyzing the numbers to determine profitability, handle the stress of the risk involved, in short, wake up in the morning thinking about the business and go to bed at night thinking about it some more.

Parents can not treat the child better than their other employees. If the others see any indication of that, the child will not have credibility as a boss.

The child has to feel their input is appreciated and the parent needs to let the child make a few mistakes. They need to be thrown into the deep end of the pool and fight their way out. The child will grow and the employees will respect the child.

Don't give ownership to children not active in the business. Parents need to explain how they value the business and not be afraid to tell their children what their plan is. Too many parents are afraid to tell the children their real thoughts. The parents accumulated the assets and have the right to decide how to dispose of them. Fair and equal aren't the same and not always relevant.

Don't be afraid to pay taxes and accumulate some wealth outside the business. Money on the side goes a long way to solving the transfer problem.

Make sure the business is worth something. Pay down debt, make sure it provides an adequate return for the owner. Giving a poorly run or not very profitable business doesn't do any favors.

The kid might be a better operator than the parent. If the kid grows the company while an employee, don't suck the money out as a parent and reward the other children - I've seen that done too.

Whether the child is wired to run a business will become apparent pretty quickly. Don't try to push a square peg into a round hole. If the child doesn't have the ability, deal with it. Don't sacrifice the lives of your loyal employees because you can't face the facts with your child. I've had clients with 100M businesses decide that employees were more deserving and had better business skills than the children and included those employees in their planning. Remember, the business is also your child and needs to be provided for. If the child can do that wonderful, if not, prepare someone else.


Dave

beckerkumm said:

Don't give ownership to children not active in the business. Parents need to explain how they value the business and not be afraid to tell their children what their plan is. Too many parents are afraid to tell the children their real thoughts. The parents accumulated the assets and have the right to decide how to dispose of them. Fair and equal aren't the same and not always relevant.

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I would qualify this as don't give ownership of the active business to children not active in the business. A few methods I've seen are to separate out the real estate, or to have the business owe the estate some money. If you give one child the business and split your non-business assets equally among all your children, one of them is getting a lot more money than the rest and this often causes bad blood.

my kids are young so I and am interested in this. but I can give a perspective as a kid growing up in a business. my dad had residential rentals, lots of them, still does, out of 9 kids only 1 works with him. make sure the kids dont only see the misery. I spent weeks at a time fixing a dump, scrounging drywall out of a burnt out house to save buying 2 sheets, type stuff then the hours trying to match up the mud, just sheer drudgery. but I was cheaper labor and money was TIGHT, and it never ended. a year later back working on the same house been destroyed again. to this day I hate dealing with rentals and poor people. (I do have some rentals though) make sure you have time to go have fun with them so the business isn't seen as a demanding witch that is more important than they are. if your working 90 hours a week continuously your kids will hate it doesn't matter how much wealth is piled up. you kind of have to figure your kids will just go a different way, build your pile for yourself and if one loves it great, if not thats good also. try not to guilt trip them " this is all gonna be yours someday thats why Im working so hard" type crap. unless the kid is a whip pup type you will alienate them. some how my dad who was a one man show, roofing contractor (he bought some earthquake damaged houses from the los gatos earthquake then brought the money to idaho) out of 9 kids , 7 boys 2 girls. there is 5 well drillers, one truck driver, one working for him, one electrician, and one job jumper. personally I think a college education in many circumstances does more damage than good. I am watching a couple of cousins 23 and 25 one is just getting his first job after 6 years of college he is stuck working where he is just a number and working 60-80 hours a week for 90 grand a year salary, thats 25 bucks an hour should make that anywhere after 6 years, tons of mental stress, away from family.

DanielG said:

I would qualify this as don't give ownership of the active business to children not active in the business. A few methods I've seen are to separate out the real estate, or to have the business owe the estate some money. If you give one child the business and split your non-business assets equally among all your children, one of them is getting a lot more money than the rest and this often causes bad blood.

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Better said . I also agree that some method is likely needed to make the non active children treated fairly. That is why having the business in solid financial condition is so important. I'm not a fan of having some children own the real estate. My preference is having the business borrow from the bank and pay off siblings. Owing siblings leads to fist fights and gun play. A bank is brutal but a better creditor. Dave

Judging by your posts you are the 1% or maybe even the 0.1% of machinists with respect to talent and drive. It would be very surprising if one of your kids could match this. My suggestion is not to push it on them, if they are interested in what you do great, if not use your resources to help them get into whatever they happen to be interested in. Its probably not so fun to have to follow in the footsteps of someone who is very successful.

My strategy for passing on the work ethic is to spend as much time working in my kids their presence as possible, fixing the car, working on the housing, cutting up firewood, doing the dishes, cleaning the bathroom, even when none of these things make sense financially. This is what my dad did, and it made a big impression on me, unfortunately I have a hard time keeping up with his pace even though he is in his eighties.

Somehow you have to convince them that the rest of society is doing it all wrong and that work is actually the most interesting and fulfilling thing you can do with your time.

Stan

I am second generation. I have video of me working as a 10 year old. I worked all through high school then went to a technical college in a manufacturing related major before returning to join the business.

I have been integral to the direction the business took since I was a few years in to my career here. I have seen every step in the decade plus since. Our equipment is entirely different as is the the of work we do. I believe our value to the customer is in our value as individuals. They know if they talk to me about a project I will personally be seeing that is it done. If I were to sell that trust might not translate to the new buyer.

If I was to try and join now I wouldn't understand what it took to get here. I do everything from quoting mid six figure projects to cleaning sumps. I think it's important to understand every part of the business to successfully lead the business. If I wasn't passionate about the work I do I would never be able to be as successful, hands down. I would love to bring my own kids into the business but if they would rather do something else I will give them my blessing. It's either in your blood or it isn't.

Equal is not fair.
Fair is not equal.

Make the child work for someone else for a few years after some type of post-secondary education.

A business succession plan and an estate plan are separate. You must have both.

You have to be willing to watch them fail.

You have to be willing to allow them to do things differently.

A profitable family business can be a pair of golden handcuffs. Make certain they are not being a dutiful child.

You MUST be willing to step aside and let them do the job. I've seen more business transitions fail because the older generation wouldn't get out of the way than I've seen fail because the next generation couldn't do the job.

See recent Disney fiasco. Not family, but still old boss wouldn't leave.

There are some huge success stories of fathers passing the torch and sons taking their shops to the next level, substantially changing and growing the businesses. I think in these cases, the sons cut their teeth early (grade school) and took their own initiative when the time came.

Also plenty of failure stories, or failures in the making - like watching a sinking ship. Some local plating and grinding shops come to mind.

If your kids have what it takes, you'll know and they'll be the ones driving the changing of the guard. If they're just chilling in the backseat, you'll know that as well.

If your kids fall into the latter group, do not despair because I think that's more common than not. In these cases I think you're better off divesting into other assets (like real estate, which could include the building your shop is in) and gradually selling the company to the employees.

"Make the child work for someone else".........ya mean like as a doctor in the Emirates ,pay starting at US$2000 a shift tax free ,luxury accomodation ,meals,car ,all supplied.

My kids are 16, 12 and 5.

When I was younger I wanted to grow a business into something grand. As a wife and kids came along the primary focus changed to raising good humans. I'm realizing that I put my "build a great big business" energy into my kids and will continue to do so with no regrets. What happens to the business when I'm ready to move on wasn't really a big concern. My primary concern centered around making sure my desire to stay in business doing something productive later in life wasn't a drain on those around me- I witness this with my older friends. They keep taking a little bit more of those around them every year to keep their doors open until nobody's happy.

So I guess where I'm going with this is I am wondering what a plan B, handing it off to kids successfully, really looks like. Identifying (realistically) if they have what it takes and if it's a good fit.

I was a strange kid. Very, very shy and terrible communicator. My dad continuously exposed me to working on vehicles, fixing the house and I spent every nice weekend at the dragstrip. I wasn't interested in any of it until I was about 18 and figuring out how the real world worked- Then I wanted to learn and do everything all at once. I've always had a strong work ethic though. Jumping into hard work has never phased me. I see those same traits in my kids, except my wife is a great communicator and my kids got a lot of that. They are much more outgoing than I was as a kid.

As I get older and I think more about the possibility of my kids using a business I created to jumpstart their success, I don't want to make choices that would harm that potential. I don't want them cleaning out sumps or doing monotonous work every time they're in the shop. At the same time, I don't want to plan for a succession that is not a good fit. I want to facilitate something organic if possible and identify if it's not going to happen.

I've been observing my boss and his college aged son for the past couple years. I've learned a lot, mainly from watching what NOT to do.

-Give your child responsibilities as soon as they are ready. Start slow, but continously add new jobs for your child. Without this, they cannot feel success.

-Be prepared to let your child fail. Without failure, there can be no personal growth. Occasionally you need to let them ignore your advice. Once they learn the hard way, they will be more willing to seek your experience.

-Do not yell, curse, or belittle your child, especially not in front of your employees! Never do this.

-Do not elevate your child above the other employees before your child is ready to lead. This will cause your child to be disrespected. Nobody likes the "bosses son" who knows nothing and just acts bossy because his dad is the owner.

-Let your child choose their own path. They are not you. If they want to do their own thing, you need to support them in that. If they feel forced into the family business, most likely they will learn to hate it.

Garwood said:

As I get older and I think more about the possibility of my kids using a business I created to jumpstart their success,

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This is about as far as I have made it thinking about my 5 year old daughter and my business. I'd be pretty OK with her knowing how to do most of all the stuff I do in the shop, but I don't think I want to force anything on her like make her feel like she has to take over someday etc. If all my business does for her is to teach her what is possible and how to network etc and she takes that and does her own thing, I think that is fine with me too.

When I was still working I spent a lot of time with farmers in the Mid-West.
These are all family businesses with a few employees.
I loved to watch how the kids fitted into the business. One example I really enjoyed, was Dad running the farm, Grandpa loved driving the combine, and would be telling Dad what to do, and Dad would say yes, and just carry on with what he was doing.
Son was recently back from college. Dad knew that Son could bring something to the business, after his schooling, and Dad was keen to let Son develop. New ideas on managing fertilizer applications, analysis of results, and some financial ideas.
It was interesting to watch Dad as he listened to Son, and let Son pursue his ideas; but Dad did keep a "soft veto".
So often, on other farms, where I'd built up a relationship, Dad and I would discuss how the kids were developing, and how much they enjoyed working with them, and watching them grow.
I think there are parallels in all business situations. Encourage kids to get a good education. Discuss with them how they can add value to the business, if they have interest, of course. They can be working and learning in the business during breaks; something of an apprenticeship, perhaps.
All the points raised above about treating the kids with respect as they develop, and most importantly avoid them developing a sense of entitlement, which will hurt morale.
Good to all in this situation.
Bob

The smart thing is you are actually making conscious decisions and thinking about this process - good for you.

I'm the oldest (and now retired) with a brother 2 years younger and a sister 11 years younger. Dad worked for a company but always had a business on the side. So the two older of us grew up working in the business from about age 5 or 6 which worked out fine for us. When he retired at about 55 he started another business. By then my brother and I were working for good sized companies - me local, my brother a few states away and our sister was just getting out of college. He made the offer to all of us to come into the business. Second hardest conversation I ever had with him - telling him that I would do anything to support him but no way could I ever work with him as it would become a disaster. He was not happy with the discussion. My brother took him up on it, quit a very good job and moved back. Our sister (she and I both had technical degrees) did not want to move back as she was just starting to try what she wanted to do. A little over two years later my dad died unexpectedly - leaving me as executor of his estate. He had been up front with all of us as to how he would divide things in this case so there were no surprises. I was happy that all three of us were on good terms by the time everything was settled.

Because we had to financially my brother and I became partners for about 10 years - me as a small minority owner; our sister wanted to be bought out so we did. I worked part time in the business and had complementary skills to my brother so things worked out. At that 10 year point I had to make a decision as to what way to go and chose to sell out to my brother. We managed to do it, he continued to grow the business and now some of his kids are involved in it. No hard feelings and we all get along fine.

There is no one way to do this successfully, just as there are many ways to screw it up. Develop everyone's work ethics and be honest as to abilities and shortcomings. The kids also have to be strong enough to realize if they want to - or can - work in a business with their parents and/or siblings and spouses. Some families can, some can't. It is a lot easier to realize and face the truth up front than to try and fix a disaster later on.

Anyway, just my 2 cents. YMMV

The last job I had,the old man got sick,and the son had to come back and run the business.......he was a specialist toy buyer for a big importer......he had to research ,decide ,organize manufacture ,import and distribution of the toys that would hit the market in six months time..........apparently a six figure salary......anyhoo,he quit that and came back to run the sandblasters .

Garwood said:

I'd like to hear from anyone whos worked to build a shop from nothing and successfully passed it to the next generation. Especially if your kids took it up a notch. What did you do? What did you emphasize to them about business as they were growing up? What do you feel did right/wrong? How old were they when they wanted to get involved?

If you took a business over from your parent(s) what got you interested? What made it successful? What education did you pursue? Do you feel like you compromised your goals or did you see it as a big opportunity?

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I can share what happens when you DON'T do the right thing.
Dad didn't plan for the future. He kept putting it off. Meanwhile his jack-wagon brother and fat niece were robbing it blind.
One day, a company that was grossing $15m a year had $300 in the bank and $800k in debts.
Moral of the story - start talking and planning NOW.
I had to sit and watch as my future burned. Fortunately, I grabbed the two best machines, the Rolodex, and beat feet out of town.
Here I am, prosperous and working my own shop. But it NEVER should have gone this way.

Put it all in writing and review yearly.