In past articles we have examined the challenges of family dynamics when running and operating a closely held, family-run business. We have also talked about the challenges of a parent deciding when, who, and how to pass the family business on to his or her offspring. History is replete with family-run businesses that exist well into future generations. However, it is also full of stories that clearly describe the failings of these businesses and how difficult it can be to maintain a family-run business beyond the first generation.
As challenging as parent/child relationships can be, we have likewise seen in our practice just how challenging it is for siblings to operate as co-owners. Quite a few of our clients are brother/brother or brother/sister owners. Others have several siblings involved in the ownership structure. Even if the siblings started the business from scratch together, it can often be hard when they finally reach the time to exit to do so in an agreeable, orderly fashion.
Quite often the issues we face in getting two siblings to concur on a business sale were created years earlier in the business growth by barriers, walls, and in some cases seeds of outright distrust that were planted by comments or actions that were difficult for the siblings to overcome.
Because of this, I thought I would share with the readers of our blog some great advice I recently came across on Entrepreneur.com from a pair of sibling co-owners. Authored by Matthew Toren, “contributor, serial entrepreneur, mentor and co-founder of YoungEntrepreneur.com,” the piece offers fantastic advice to any of you who are co-owners of a small business (or even a larger one) with one or more of your siblings.
Based on our years of working with family-run businesses, we agree with all of this advice. Each of these is equally important, but to avoid conflicts down the road as the business grows, we have seen how vital the second one is. The siblings we have seen that work best together throughout the years have been those that clearly outline (in writing if possible) what each person will be responsible for – and once these designations are established – stay out of each other’s hair!
We have rarely seen siblings who have the same skill set. Generally what we have experienced is that one will be more comfortable with financial management and/or operations and the other sales and marketing. Now this demarcation does not always fall cleanly into this segmentation, but more often than not, it does. And when it does, as long as the two (or more) siblings have allowed each other freedom to manage and lead their respective groups, the more success we have seen longer term.
This method does not ensure sibling success in operating a business, but it definitely helps. So if you are part owner in a sibling-run business, clearly outline what each of you will be focusing on based on your individual strengths and interests. Allow each other the space to operate and the freedom to make decisions that are not second-guessed. If input is asked about key decisions (see number four above), then give it but be sure that you trust your sibling(s) to do their jobs.
To the great list that Mr. Toren has provided us, I would add a couple of more based on our experience. First, agree with your siblings that family gatherings are NOT the place to bring up business issues, problems, and decisions. We have found this to be not only counter-productive but it can also allow family members who have no ownership in the business to give their “advice,” much of it unwanted and unneeded. If there are a number of family members with minority ownerships, then key decisions should be made at specific meetings of the “board,” not over Christmas Dinner after a few too many of Aunt Martha’s famous spiked eggnogs.
Secondly, and most importantly, sooth and fix hurt feelings ASAP. Do not let bad karma fester in a business/sibling relationship. This becomes especially true if you are on an exit plan that will require the two (or more) of you to agree to a sale. Far too often our dealmakers see a perfectly good financial transaction go up in smoke because of hurt feelings generated by a word or a deed years earlier. As challenging as it is, ferret out these issues so that when the time approaches for the siblings to agree to the business sale, both are in agreement.
Now in many transactions we work on with sibling ownership, it is not necessary or even needed for both (or more) to exit. In many deals we have closed, the OPTIMAL deal was a partial sale where an equity group cashed out an older brother and the younger brother was retained to operate the new entity as a holding of the equity firm. But even with this structure, legally before a co-owned business is sold, both siblings have to agree. So be sure to address any inter-family squabbles that have been allowed to fester longer before hiring an M&A advisory firm to work for you.
Naturally, any enterprise where family members are involved will have the opportunity to create family friction – chafing that would most often not be present if the company were not family run. These issues go back to Cain and Abel, and although they cannot be avoided, their impact can be minimized.
To learn more about how you and your siblings can prepare your company, and yourselves, to be ready to eventually sell, I invite you to attend a Generational Equity M&A seminar. While there you will not only learn a great deal about the overall M&A process, you will also have the opportunity to speak with our one of our managing directors and seminar leaders, many of whom owned (and in some cases) co-owned a family business.
And we want to give a special thanks to Matthew Toren for writing an insightful piece on how siblings can get along even while running a company. You can read the entire article here: 5 Keys to Successful Sibling Partnerships.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
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The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
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We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
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