Family in Business: More than co-workers

When family and business mix, things can get complicated—especially when planning for a business transition. In this episode, we explore how family involvement impacts valuation, decision-making, and deal execution. From navigating tough conversations to structuring fair outcomes for all family members, we discuss strategies to help business owners avoid common pitfalls. Whether you're thinking about selling or preparing for the future, this conversation will help you take the next step with confidence.

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TRANSCRIPT:

Welcome to Integrated Insights with ICCG. For more than 30 years, our team has

partnered with small business owners to prepare for and navigate the business

transaction process. Pull up a chair as we share stories and insights from our

experience on all sides of the M &A table.

Well, welcome back to another episode. My name is Michael. I'll be your host today.

And I have Andrew with us, one of the team members of ICCG, as well as Grant

McQuulkin, one of the founders of ICCG. Welcome guys. Today,

we're going to be talking about family, which, you know, we know about both

personally as well as through business and what family does both in business in

general, as well as in a deal, in a business transaction. So to get started in

talking about preparing for a deal and moving toward an exit, what kind of impact

on valuation does having family involved in the business make? - Yeah,

valuation is a difficult issue because it really depends on whether those family are

producing value or whether they're not. Whether they are key to the outcome of the

business or whether they're not. It's the same questions you ask about senior

executives or senior management team when you're talking about value. They can add

value or they could also, not because they're not productive,

but let's just say after transaction, they all want to leave, then obviously it's

going to reduce the value of the company because it's going to cause the buyer to

have an additional expense, right? So it's impossible to say it's going to add,

it adds value because it's a family business or it takes a value away.

Every deal, every business is different, yeah.

But let me just, let me just say, I know we talk about family businesses today,

you know, one of the things, one of the things that we always tell people and we

have to prove it, obviously, because everybody will say this, but family is big time

important to us personally. And so, you know, how do we find out? How do we,

you know, those initial conversations that we have, we're always asking about people's

family. Because family is so important important to us. And a lot of times when you

own a business, it's sort of what the family is all about or at least what

provides the family they're living. And so when you start talking about change of a

business, you're always talking about things that the family is going to have to

react to changes that are going to be made. They really don't know how those

changes are going to affect the business or the outcome of the transaction.

And so it's always a subject that we approach. And when we say family,

you normally mean, oh, you know, there's kids in the business, but we deal with a

lot of couples that have built a business together. And so,

you know, family is also a married couple who've owned a company for years and

worked in it. And sometimes one spouse less so than the other. And it's impactful

to the entire family. So it's a it's a very important subject that we're talking

about today.

So you mentioned there that in a lot of family businesses, the family is all about

the business, right? So have you ever seen where maybe the business owner starts

moving toward the idea of an exit and that doesn't really line up with the vision

or goals of other family members that are involved? I would say it's probably the

biggest reason why business owners don't sell is because they can't,

they don't know the answers to the questions on how it's going to affect their

family members. And so they don't want to really have that conversation with their

family members and so they freeze.

And one of my soap boxes is that it's so easy for business owners to kind of let

the business slide or maybe next gen is running the business and they go to the

lake more often, play golf more often or whatever it is that they wanna do instead

of be active in the business. And the business does a lot of times,

it suffers from the lack of involvement, but more so when that owner passes away,

it produces a really, really difficult situation. So it's like the owner doesn't want

to deal with a hard conversation, so he just wants to die and let his kids figure

it out, always wife for his or husband figure it out. And it's really unfair.

You know, I used to talk about the sandwich shop at the bottom of our office

building that we used to be in. And it was a husband and wife that operated the

company.

And I, you know, would go down and buy food and I'd talk to them about their

businesses, a little bitty business, but I also knew that the building next door to

us also had a sandwich shop. And I said, "Why don't you get together with the

other couple that runs that one? Oh yeah, we're friends." I said, "No, no, no, you

need to get together with them and not only could you help each other in is buy,

you know, things cheaper, but you could also have a buy -sell agreement between the

two of you. So if you die, then the other couple will be able to buy your

business for a certain value and vice versa. And we just had this sort of offhand

conversation and, you know, it was really small for us to deal with. So it wasn't

a client or anything like that. I'd just go in there and mess with them just to

get to know them and get a sandwich. And lo and behold, the husband of the couple

downstairs, he passed away. The wife couldn't speak a whole lot of English and he

had signed the lease. She wasn't on the lease. She wasn't on the supplier contracts

or anything like that and she couldn't run the business and so they They completely

lost 100 % of the value of that business the day he passed away They couldn't sell

it. They couldn't you know, nothing could be done with that business and And I know

that was just a small little business was a hundred percent of the of the net

worth of that little family And I think in a very large way,

a much larger consequential way, I've seen clients when I was running a CPA firm

where they wouldn't deal with the hard questions of business succession and would

just let their families take care of it. And it was a mess because you had

siblings that were working inside the business and you had siblings that were not

working inside the business and all of a sudden the kid or the kids that had

worked the business and built the business for the family were equal owners and

really answered to the majority of the family that were not in the business. And it

just left a complete mess. And so I would say the reluctance of business owners to

get answers to these questions that we're going to answer today, it cripples families

and that's where we have a little bit of an issue, right? Because we want families,

we have a saying around the offices, you know, a priority for us is to make

families Sunday afternoon at the lake much better than what it is today.

Yeah, I think that we've done I mean we've done a couple episodes I think over

deal killers and and to be honest we we kind of jokingly say people are the

biggest deal killers right and so more specifically the opinions and expectations that

are unmet or not communicated though those are big deal killers. And so the,

you know, the visions or the goals, when you're talking about that and how that

does complicate things in this process,

really, the first thing that we have to do is get everybody on the same page,

right? And so, and honestly, I mean, even on the same page,

so people might be looking at different parts of the page, right? And so, it's not

that we have to narrow that down, but we also have to come to terms that, okay,

there are going to be differences. And what are some things that are more flexible

than others? And so, what's the ultimate goal of the family?

What is family going to look like afterwards is, you know, if they're kids in the

business, are they going to remain in the business afterwards? Are they, you know,

what, what does all of those things look like? I mean, there is a lot of, I mean,

everybody's different. And, and, and so, and everybody thinks that that they're right.

And so it's, it's just always a mess because, because because of that,

that kind of mindset. And so having that mindset to get everybody on at least

similar or same page is so essential for us.

- I think we regard family so highly that it's worth running to the chaos.

In other words, it's worth asking the hard questions to get those answers and to

make sure that the owners get what they want and are,

you know, it's communicated to the family in a way that makes it more smooth and

understood and it's, you know, people aren't left holding the bag at the end of the

day. That's where the wise words of Dave Parker comes back in, right? Bad news

doesn't get better with age. There you go. Right? That's awesome. Exactly right. So,

in preparing for a deal, we talked about how it's important for the business owner

to understand their options with family members, right? And then Andrew, you just

talked about as they're starting to approach that, maybe pre -market a little bit,

It's really important for everyone to get on the same page, so pulling in the

family members on what those options are, making sure everyone understands.

As engagement starts, as they actually start to move toward the deal and start doing

the deal, they find a buyer or all those things, what role does a non -family

advisor play in having family involved in the business?

I guess our position that every one of our clients are really, really smart. They

really do know what they're doing. They make really good decisions in order to build

a business that they've created.

The expectation then is that they know everything. Even as a business owner myself,

you don't want to come across like you're it, right? And so you're almost afraid to

ask questions. So you're kind of gleaning information as best you can from your

buddies on the 19th hole and you know that kind of you just trying to get whatever

you can to kind of gain the information that you need in order to solve your

problem, right?

That's, we know that if we give our clients the right information or tools that

they may not be aware of, they can make great decisions. And so your classic

example is, you know, what do I do with my kid that is not involved in the

business? And I want to transfer the value of my business to the kid that is in

the business. And I don't know how to do that. Well, there's simple tools that you

can use like wealth replacement trusts and different things that you can do

structurally to make sure that your kid that's in the business gets the business.

And if your kid that's not in the business gets the value that is either equal or

fair doesn't need to be the same to the value that the other kid is getting.

And so there are just ways around things that most business owners don't have to

know in the operations of their company. And so that's why we always say, and we

say this all the time, "Come sit at our table and let's talk about it, and we'll

ask you what your goals are, and then What's prohibiting you from accomplishing those

goals? And you will have access to tools and ways and information of accomplishing

your goals because we've been around it for many years. - Yeah,

it really does boil down to making sure there's no, or that all expectations are

communicated, right? And really, I think that the creative problem -solving does come

into play where you kind of take their goals and you kind of think, "Okay, I think

we can kind of come up with a creative solution here to meet that goal." You get

to know the business a little bit or a lot and understand, okay, how can we best

and most realistically attain those goals?

And so I think that it requires us to be creative,

but also inquisitive in figuring out what are the blind spots of the situation,

right? And so we have to kind of dive into that. And I mean,

we've sat down with people to figure out two options,

one selling to your couple kids and /or you go sell to an outside buyer,

right? And we've given the direction to a client before that he should not sell to

the kids. And for one reason or another,

we have told that to a client.

bad guy, um, just to deliver the bad news, right? Just like Dave says, bad news

doesn't get better with age. And, and so family relationship is super important and

we have to work hard to preserve that. Um, and Michael, before you,

uh, you came on, um, you know, Grant sat us both down and said, I would rather

shut the door than cause problems between our family. And so we need to make sure

family is first. And so, I mean, that should be the case because family is more

important than business. It has to be held in high regard.

- Yeah, and the only thing I would add to that, Andrew, is that, you know,

us older guys, Sometimes we are, you know,

there's new technologies out there, there's new ways of accomplishing, there's

certainly new ways of marketing, right? We've been talking about that in our firm.

And I don't necessarily, I mean, older guys don't necessarily know all of the tips

and tricks when it comes to new technologies. And so there's an adversity to change.

You know, if it ain't broke, don't fix it, as we say in Texas, right? And so it

just comes down to where the younger generation is discouraged because they want to

try new things and the older people are going, "No,

you don't need to change it or it's almost like because you want to do something

different the older guys think well that's like a criticism of what I did to build

this company you punk right and so and so you've got all of these feelings and all

of these insecurities that come up and it's just so much easier if you have a

third party that is pointing those things out. So, if you've got,

I'm just picking on, let's just say it's a father and a son. And, you know,

the son has some, yeah, the son has, has some pretty good points to make.

It's easier for us as a third party to say, Hey, dad,

You know, this guy has some really good points and you know, he's learned your

business. Do you want him to try these things now when you're there to help him

out or do you want him to wait until you're in the grave? I mean,

you know, I know that sounds harsh, but we can be that candid because we're not

family, right? Right. So we save the sun from having a blow up.

And in one case, you remember, you know, the sun said, "Look, I'm done with you,

Dad. I'm out of here. I'm going to another company." Which happens actually not

infrequently, right? It kind of happens. Yeah.

And so come sit at our table, get the knowns. In other words, convert what you

don't know to things that you do know, understand the information that you need to

understand in order to make great decisions, and get a third party in there who's

objective. Look, mediation is a word that is used in legal terms to get two parties

who are apart to come to the middle. But The reality of it is that sometimes we

just need an adult in the room because the insecurities have produced these childish

emotions and trigger words because they've been said when your kid is five all the

way to when they're 45. And so you just need an adult in a room,

so to speak, or somebody who has the We're on both sides and really doesn't want

anything but the family to thrive. And that's really why I started there in the

beginning of this podcast is because our goal is to make sure that the family

thrives. Yeah, we'd love to sell a business, so to speak, or help them create a

succession plan where the next gen can take over the business, But at the end of

the day, we really, really want a family to thrive. Yeah. And I will also say,

you know, we really ask, we dive into roles,

right? And we kind of do these, we call them interviews, right? This is a little

bit more geared towards transitioning a business uh or to the next generation right

and so we ask about each each of the roles both you know both dad and son if

that's the case right so um you know dad you and i have not only different roles

uh in in the firm but we also have different personalities and in visions we we

see things very differently and so it let's just put out an example. If I was to

buy ICCG from him, I won't replace him automatically.

Everything that he does, I won't do the same things. And so understanding what holes

he is leaving is vital for my success. And so a lot of times we

we'll point out the holes and say either there's outside expertise that we need to

replace, right? I'm not a CPA, right? But he is. And so how do I replace that,

right? That's kind of what we're talking about. And there are also things I think a

little bit differently. And if makes make some sort of change like he you know we

kind of mentioned earlier he he might say well no no no no no no don't do that

you know and and and he would do it differently and so that that causes that that

friction uh that can cause that friction and and and so um we have to kind of

figure out okay what are the differences and make that all known uh so that We all

have the right outlook in moving forward. But even after the transition,

you know, look, Sunday at the lake, as we say, can be great.

You're still going to talk about business, right? I mean, no matter if you make a

rule that, hey, we won't talk about business. But That's just kind of the nature of

us. We want to talk and we want to talk. Hey, how's business going even after

transition? And they may say something, well, don't do it. Look,

it still causes some conflict. But as long as we have the right outlook of things

are going to change, but what is necessary to remain and what can be a little bit

more flexible. Just like he said earlier, you know, I think that's a really great

question to ask is are you willing to maybe let them make that change while you're

still here because then you can kind of both figure it out together. And that's

where it's, you know, those are the questions that we can really ask,

a third party should ask, just because, like you said, it's an adult in the room.

- Well, that's really all the time that we have for today. I wanna make sure our

listeners here that this is something we're very passionate about, and we would be

excited for the opportunity to run into that fire with you. Make sure to check out

or go see our email and our show notes. We'd love to get an email from you,

whatever kind of questions you have, sit down at the table. But that's all we got.

Thanks for joining me guys. We'll see you next time.

And that wraps up another episode of integrated insights with ICCG. Be sure to

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listeners. If you have any questions or topics you'd like us to cover, please send

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there's always a seat at our table.