Getting Brothers on the Same Page
This week, I was approached by a colleague about a pair of brothers, who are operating a business together, who are approaching a crossroads. My colleague asked me for some input on what kinds of issues they would be facing, and how he might offer to assist them.
(This made me flash back to a blog from April 2014, about another pair of brothers who worked together).
He didn’t give me too much to go on, and I’m not even sure how much information he had himself, so I will have to fill in some of the blanks with my own assumptions. This is fine because anything I offer here cannot be prescriptive, nor should it be overly directed to the specific facts of their case.
So here is a scenario, including my assumed facts:
Two brothers, in their late 50’s, co-own their company, which they have grown over the past 30 years or so. Both have children, but they are too young to take over right now. “Frank” has a vision of somehow keeping the business in the family, while “Sam” just wants to sell.
As usual, I have many more questions to ask before being able to supply any useful answers. Here are a few that come to mind immediately:
– Are these paths mutually exclusive?
Not necessarily. If Frank has an interest in staying on and eventually bringing his kids into the business, there are certainly ways that this can be done. If Sam wants out, they would need to come to a negotiated agreement on the sale price, including the terms and conditions, which would allow Frank to buy his brother out.
Frank would need to be sure that the leadership and management roles that Sam had assumed would be covered off by someone, and they would need to come up with a financing arrangement that would allow Frank to purchase Sam’s shares over time so as not to put the company at risk.
– Can the business be run by a non-family member?
If Frank is not the type to run the business by himself and if it will be a number of years before his kids would be ready to assume key roles, the option of hiring professional outside management can also be an interesting idea.
Not all family businesses pass directly from parent to child; often some trusted managers assume top roles for a number of years while the next generation completes their years of preparation to take over the top job.
– Has an outside buyer been identified?
If an outside purchaser has been identified, a sale of the business, whereby both brothers actually cash out, could be a blessing in disguise. Sam can close the book and move on, and Frank would be free to do as he saw fit with his proceeds.
– Could Frank help his kid(s) run another business?
Some parents love running a business and long for a relationship with their children in which they can pass on that love to their offspring. But many times the particular business of the parents is not in a field that captures the imagination of their kids.
How about taking the proceeds and finding a business opportunity in a field that the children are attracted to, and helping them start their own business in that area?
– Where should the brothers begin?
Ideally, Frank and Sam can discuss all of these options before going too far down the road with any particular option.
– Beware the advisor who only carries a hammer!
Too often, guys like Frank and Sam are not sure where to turn, and they take the first piece of advice that comes their way if it sounds plausible. Remember the saying about a man who only has a hammer, who looks at everything as if it is a nail?
Business advisors, most of whom specialize in one particular area, are also prone to this type of reflexive advice. For big decisions like these, taking the time to look at ALL of the options makes the most sense.