FREE TRAINING: 3 Keys to Sell Your Business with Confidence

The Probable Dysfunction Within a Family Business

I’m so glad it didn’t work out the way I planned.

When I resigned from the Walt Disney Company in 1995 to acquire a radio business in Nashville, I had visions of bringing one or all three of my children into the business. The fact they were under the age of seven at the time didn’t dissuade my enthusiasm, I had plans for a “family business.” When I explained to my boss at Disney why I was leaving such a great job, I told him I wanted to have a business I could do with, and eventually leave to, my children.

I’m so glad that plan didn’t work out. My three children are adults now, they are all responsible and productive in their chosen careers. I can’t imagine any of them wanting to be a business owner, at least now. I realize now that my desire 23 years ago isn’t consistent with how God wired my children.

I have seen too many cases where children were expected to enter a family business, and did so only to later regret it. The reasons for the resulting dysfunction are numerous. Perhaps the parent is not an effective boss, perhaps the job the adult child is forced in to is not consistent with their talents or inclinations, or maybe they just want to be in a different line of work and resent expectations put on them by their parent. I’ve also seen many situations when the parent forgot that their adult child was an adult. But whatever the reason, when the parent/adult child work relationship isn’t right, it creates stress not only in the business, but in the family, and usually that includes the extended family …in-law children, grandchildren, etc.

I work with many business owners who want help transitioning ownership from one generation to the next. Almost always, those situations come with a troubling background story. Suffice it to say, transitioning ownership between generations is seldom easy, much less smooth.

All this makes me wonder, is the benefit of being in business with your children worth the risk the work relationship might result in abject family dysfunction? From my experience, I’d say it is NOT worth the risk. The way I see it, running a business is hard enough as it is, why bring the potential for damaged family relationships into the picture?

I suspect many of you reading this are turned off by my extreme perspective. You might know of a family business that is completely functional, maybe your’s is one of them! In fact, one of my best friends is an example of doing it right, so I understand, it can work. But on balance, when it’s time for the adult child to assume control of the business and transition ownership from the parent, you’ll see “stuff” emerge you’d rather not see, and that “stuff” normally causes problems with the transition. And all that bleeds into the family relationship.

If you are thinking about going into business with your children or have already done so, what can you do now to avoid my dire forecast? Well, as with most things in life, nothing is better than careful planning. Let me offer four pieces of advice to make that planning more effective. First, have a plan in place well in advance of your desire to execute the generational transition. Second, have all your children understand and agree with the transition plan. When I say all, I mean all, even those not involved in the business. Third, give the adult child the right to have that transition plan reviewed by an independent third party to assure it is fair to all parties and doesn’t put undue stress on the business. And finally, give your child the opportunity to re-evaluate the transition plan on a regular basis.

The warm and fuzzy thought of having your children work with you and eventually take over your business is compelling, but based on years of seeing the fallout, I’d say there’s a slim likelihood of it all working out like you hope.

JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. Jim is the author of Home Run, A Pro’s Guide to Selling a Business. . He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee.

The following two tabs change content below.

Tennessee Valley Group

Jim is an attorney (non-resident status with the Missouri Bar) and though he no longer practices law, he has read and negotiated enough legal documents to fill a cargo tanker. He has an MBA from Harvard Business School and knows how Wall Street and private equity operates. Jim is a Tennessee Supreme Court Rule 31 listed general civil mediator with tons of experience helping business owners (large and small) work through sensitive problems to achieve winning results. He is the author of "Home Run, A Pro's Guide to Selling Your Business, Seven Principles to Make Your Company Irresistible."