Generational Transitions: Keeping the Business in the Family

In this episode, we dive into the challenges of passing down a family-owned business to the next generation. We explore key considerations, like balancing fairness between parents and children, navigating family dynamics, and planning for future leadership. Whether you’re planning to keep your business in the family or sell to an outside party, this episode offers insights on making a smooth transition that preserves both family relationships and business success.

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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.

Welcome back to another episode of Integrated Insights. My name is Michael Hefner.

I'm your host today. I'm joined by the founders of ICCG, Grant McQuilkin and Dave

Parker. Thanks for joining me, guys. Hey, Michael. Hey, Michael. Today, we're going

to talk about generational transitions. When it's a family -owned business,

founder -owned, and they don't want to just sell outside of the family, but they

want to keep the business in the family. What does that look like to transition?

And some of these business owners, this is a lot of what we work with, family

owned and initial founders. But a lot of times those families,

they may think, hey, if we're keeping it in the family, why do we need to bring

in a third party? Why do we need to bring someone else? We can figure this out.

And so what would you all say to business owners that feel that way?

Yeah, I think the biggest reason why we get brought in,

and it's not the right reason, but the biggest reason why we get it brought in is,

hey, I want to be fair to my kids, but I also need to be fair to myself.

In other words, I'm going to withdraw from the business, And this is my biggest

asset. And so how much do I need to make them pay me?

I don't want to ask for too much, but I don't want to ask for too little.

And before long, I mean, Dave and I are happy to have that conversation with

business owners. But before long, we get to find out that there's a sibling that's

not in the business that they want to take care of, that there are concerns from

one spouse. I won't say normally which one it is.

There's concerns about one of the spouses that the son or the daughter is not

capable of running the business. And the other spouse is for sure you've got to

sell the business to that particular kid who for sure is going to be successful and

they trust them with the business. And so there's a whole lot of questions in there

that that they really do have. But what brings us to the table generally is,

hey, how much is my business? How do I do this practically? But how much do I

need to charge them? Yeah, I would say that if you're thinking about transferring

that business down to the next generation in some form or fashion, whether it's by

sale or transferring, you know, however you want to do that, you're in a minority

that's really, really fortunate because so many of the people we deal with, that's

not the case, and I don't know how many business owners we sat with, they're going,

"We have kids, but no one wants

And there's often, that's not really bad. It could be the best choice they ever

made, right? But oftentimes they don't know what maybe a great business their mom

and dad have built. And, you know, because things have been kept quiet, you know,

kind of under the table as far as finances and things like that. So the kids don't

grow up knowing that. In other situations we find out where they, the kids have

grown up in the business. I was talking to, it was fascinating, I was actually

getting something from my homemade I was I was having some there's I'll go ahead

and tell you it's a stair nose you know when you're when you're putting in stairs

and you've got like this overlap right on the stairs and we had a contractor come

in and finished all the flooring putting in this cork flooring we had put in you

got to the you got the stairwell and he and he left you know we never saw him

again. We still don't know what happened to him. So that's a whole different story.

That's how I'm not to do business. Now, through a long series of events,

I'm trying to find somebody who I heard that they could actually form your cork

flooring or laminate flooring, whatever it is, into these really hard stair nose that

won't break off, you know, when you, when you step on everything. So I found it.

And so I went down and met this, I walk in this young man as he looks really

young. And I find out, I started to question him about it. And he says, oh yeah,

my dad and I, we kind of developed this whole system where my dad really did how

to, he's a old time flooring guy and he developed this whole system on how you

take and mold these and it's, it's undergirded with metal and everything. And it was

fascinating. And he was talking about, he said, "Yeah, I'm learning the business. I'm

going to take over for my dad someday." And he was great because he was now going,

"Well, we're going to do more than stereotypes. We're going to bring in flooring as

a whole. We're going to open a showroom. I saw this vision." And he was like,

"Yeah, my dad would do it this way, but we're not going to do it that way

anymore." That just kind of shows you, you don't find that very often. That was

really refreshing to me. But when you find a business and they want to pass it

down, we really, really urge you to make sure you just turn over all the rocks and

find out what's there. Because if you don't, whatever's under there is going to come

crawling out at some time and it might bite you. And so find out now who's capable

and who's not capable. And maybe they can be trained up. There's lots of ways

around some of the challenges you might But, you know, we really,

really like to see families that can pass that generationally down in the next

generation. Sorry, that was a long story. But I'm fascinated when I see,

you know, sons or daughters working with their parents in their business and learning

it and getting excited about it. That's, it doesn't, you don't see that very often.

So how much During the business transaction process. Is it a consideration of what

you what you just talked about? Hey, the you know, my son wants to take it over

but he's gonna do things a lot differently than me You know, does that just affect

the decision itself or are there things that can play into the actual business?

Transaction things that we can do conversations that we can be part of and to help

with that and what does that look like? Yeah, it's look

You know, Look, we work with business owners all the time, and part of our job is

to not necessarily advocate for the kids, but it is to give a little bit of a

sense of reality that, hey, this is gonna come to an end at some point, if you

sell it to a third party, they're gonna do things differently.

They're going to make changes, no matter what they say. They're going to make

changes that they believe are going to be successful. And so it's unrealistic to

believe that your son or daughter is not going to change things.

In fact, a lot of frustration is there in the kids' eyes,

in the next generation's eyes, much like theirs in management and you a lot of

times the frustration is more so in kids because they really don't feel the freedom

to go elsewhere. Whereas management can say well you know Dave's not letting me do

what I want to do and so I'm just going to go and work for a competitor. Whereas

family it's a little bit different 'cause if they did that, it changes Sunday at

the lake, right? And so it's just not, it's not an easy discussion.

And so sometimes Dave and I, particularly,

I'm not gonna say we enjoy this, but we enjoy the result that can come from the

hard conversations when we get to play the adult in the room, where we kind of lay

out exactly how we get to play that role. Yeah. I mean, in the middle of it,

it's never pleasant, but we know we've seen the beauty of it to where at the end

of the day, the business has been transitioned to the next generation and the

parents are happy they've accomplished their goals personally and they can sit back

and watch their kids and hopefully succeed. There are times when they don't but you

know they get to play advisor when they're invited back in and it's a I mean it's

a it's a fun thing to watch. Yeah

That's great. Yeah, I think you know just just the value like you said of having

that third party in the room The experienced third party to be able to say like no

like you can't expect that I mean when you just started talking there you said hey

It's not realistic to expect that they're not gonna change something right when the

fact of the matter is a lot of these founders That we meet and that we help

they've been doing this same business for 30 to 50 years. It's all they know, why

should it change the way I read it, right? - We don't need the internet. (laughing)

- I think we can help with that, right? Because, you know, Grant and I have been

business partners for almost 30 years, and we've owned a dozen businesses in our

portfolio through the years, at least. And, you know, we ran into that.

You know, we did our early days, whereas it was in the toe -in and recovery

business, and we and that in the in the Dallas, Fort Worth area. And it was,

you know, we walked in, you know, the, and we, we were that generation who was

going to bring the internet so much, so to speak, the computer into, into the

dispatch room that had always been manual phones, you know, paper on a spindle kind

of thing. And so we've seen that. And I would say, you say, you know, we've also

saw what we started seeing later in our time in that industry is we saw, we got

to know a lot of the older business owners that own their companies for decades, we

saw their kids coming in and start putting in all these different tools,

you know, with technology that was really, really helpful, that I mean, the parents

are just like, we're gonna, we're gone. We can't do it. But the business management,

Yeah, the business really did well. And honestly, Grant, we look at it. I mean, you

know, you and I aren't like, we're not the ones who said, Hey, let's do a podcast.

Yeah.

We've got some, we've got a different generation working in our office who said, you

guys need to do podcast. And we kind of kick in and scream into this. So this

happened on all different levels. You know, it's just like when it gets with family,

it gets real close, right? And people start thinking it's about them rather than

about the business. And so, yeah, I think that's where an intermediary really helps.

'Cause honestly, at the end of the day, what we wanna do is we wanna help, we

love family, you know, we have families, we have grandkids, we love to be with our

families. We think the importance of family in our world today is a huge win.

And I think that whatever we can do to help preserve that, but it doesn't help

when families are knocking heads with each other and they go to the lake together

on Sundays as Grant says. Or they're sitting around the dinner table, Thanksgiving,

they need to be family and preserve that business and family time, and I think we

can help them do that. Yeah. I just add one last thing, and that is a soapbox of

mine. And that is, I've been around when I ran the CPA.

and it just the business suffered and then they died and now what so now the

business goes to all the kids not just the kids who are in the business or it

goes it just it just doesn't it's not the way to be a good steward of the asset

that you have in the business. And so you have to deal with it. You cannot just

let it go just because you're not willing to take it on from a standpoint because

of the challenges. And again, you know, we always say business owners are smart.

They just may not have all the tools to get the job. And so we can provide those

tools, we can tell you how to take care of a kid who's not in the business with

some sort of wealth replacement cost, wealth replacement trust, but you can't fund

that trust with insurance when you're 80 years old. You're going to have to start

when you're 60 or 50, and then it's cheaper. And so the point is,

is that the sooner you start dealing with those eventualities that are literally

eventualities because at some point you're going to die and that business is going

to go to your heirs. And so, script it the way that you want using the expertise

of advisors who can help you get it done.

So, last question, thinking that business owner you just described that's that's just

trying to avoid the conversation or the business owner that is just starting to

think about hey maybe maybe I do transfer it at some point what advice would you

give to those business owners as they're just starting the conversation what what are

some of those initial steps to kind of start them on the right path pull somebody

else in that's a third party that's trusted that knows what they're talking about,

pull somebody in that can listen to everybody and, you know, wisdom, wisdom is a

wonderful thing, but sometimes we need that wisdom from other people to speak that

into our lives, right? And so whenever I've made a major change in my life,

I've always sought the wisdom of other people. And other times when I didn't really,

when I just wanted to do it my way, I wouldn't seek that wisdom. And so I

guarantee you the times that I sought the wisdom, things might have gone a little,

things did go a lot better, things went a lot more smoothly, and families the same

way. Just bring somebody in that knows what they're talking about, that knows, that

can think through all the different ramifications, think through the areas you may

not have thought about it, and let them help you plan. It's part of the estate

planning process in one way, just a little advance. - Yeah,

there's a proverb that's so, so appropriate. If you isolate, you quarrel against all

sound wisdom, right? And so getting the right people in the room is important. But

I think understanding what you want, most of the time we're dealing with family

businesses, we're dealing with a married couple and sometimes what they want is two

different things. And so we'll deal with one of the spouses and then we find out,

well, okay, we've got the goals and we can run with this, but they aren't the same

goals as the other spouse. And so, you know, just knowing that there's just more

than you involved and get your, get your spouse on the same page and coming up

with, okay, perfect world. What do I want to happen?

And then pull in advisors and say, okay, how do we get this done?

Well, hey, that's all the time that we have for today. But Dave Grant, thanks for

joining me. We'll see you guys again next next time.

and YouTube. Until next time, there's always a seat at our table.