Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
UPSIZE STAGES: EXIT STRATEGIES
09 :: Handling family matters
Be alert: When children
inherit business,
complications multiply
One of the most difficult decisions a business owner has to make is whether or not to pass the company down to related heirs. There is a significantly higher failure rate with second- and third-generation business owners.
The biggest factors that sink the next generation are failing to plan ahead and not dealing with small issues when they arise, allowing them to grow into big problems.
Parents should start working on their succession plans, whether they anticipate selling to their children or another company, well before their retirement. That allows for plenty of time to plan for their economic security and a concrete, well-thought-out transition.
If an owner?s children decide they would like to own the business it creates a number of scenarios. How is the parent going to pass on the business? Cash sale? Annuity payments? Some sort of gift? All of these issues should be discussed with family and financial advisers.
It can be especially tricky if several children are involved. First, if some want in on the company and others have no interest, how do you treat them fairly? Oftentimes owners will find ways to try and be fair, such as buying life insurance policies for the family members outside the business in an amount near or equal to the equity stake taken on by the siblings that stayed in the business.
Or if the child is paying full-market value for the company, it is not a gift and other siblings should realize they are not entitled to anything. It?s also important that kids realize that fair does not always mean equal.
Another potential hang-up could arise if multiple siblings want to stay involved in the next generation of ownership. Who gets what position and why? There are any number of potential answers, but parents and children must be on the same page for the succession to work. They should sit down and hash these issues out, creating an iron-clad plan, then stick to it.
After the succession takes place, it?s important that communication not end. One of the biggest areas in which family members struggle is addressing small issues that are bothering them. Often those small items could be resolved easily, but if the offended party keeps quiet, it allows the small wound to fester.
While family meetings are important it is probably best that some larger issues facing the business be handled by a board of directors. Outsiders that still have the company?s best interests at heart are better at separating emotions from issues and they can prevent potential problems from getting out of hand.
Additional common problems that might need to be addressed include the likelihood of disagreements in operations between the new ownership and inherited executives and potential meddling by well-meaning parents that have passed on control of the business but constantly second-guess the decisions made by their offspring.
There are family business consultants and departments at schools such as the University of St. Thomas that can help families work through issues. Business experts can bring counselors in to work with families on creating succession plans and dealing with issues as they arise. They can help create the succession plan and work the parties through some of the problems.
Sometimes they are settled, sometimes not. Business owners should definitely check with children or other relatives to see if they are interested in taking over or buying the business. But sometimes, experts say, it?s just not meant to be. The owner might be better off selling for the maximum value of the business and splitting the proceeds among the heirs before they blow it all running the company into the ground.
As the name suggests, Owatonna-based Kamp Automation looks for customers with a process they’d like to automate. It could be a small, inconvenient, tiny part that people can’t assemble. It could be a high-volume product so needed that the customer can’t find enough labor to produce it in the necessary quantities. “We’ll work anywhere from medical device companies to the seed industry for corn and soybeans,” says Kent Patterson, co-founder, president and CEO. “We just jump all over wherever there is custom automation.” The company started in his garage. Patterson and his partners built a machine. The company started to grow to the point where now it has 48 employees — and had a bunch of people and stuff in different locations. “We went from a garage to a shop to a shop and just kept moving to new places and signing leases,” he says. “We got to a point where it’s like, OK, this is getting big enough and sustainable — we felt that we wanted to look for our own space.’”
