Family business: The Parent Trap

Written by ProfitGuide Staff

The biggest problem facing family business today is not the business—it’s the family. So says business-heir-turned-author Thomas William Deans, who blames not the kids but the parents.

In his new book, Every Family’s Business, Deans focuses on the statistic that less than 10%—perhaps as little as 3%—of family businesses pass successfully to the third generation. With 90% of businesses being family businesses, and half of all business owners planning to retire over the next decade, Canada’s economic health clearly hinges on creating more successful successions.

What do Mom and Dad do wrong? Everything. They don’t talk business at the dinner table, they don’t include adult children in the decision-making process and they just assume their kids want the company. Worst of all, they often help their children out by “gifting” the business. “That’s where the wealth destruction takes place,” says Deans. “Lots of kids are talented, but when the business is gifted, they don’t appreciate it.”

Deans’ book is a distillation of his own family’s experience. He considers himself a fourth-generation business owner, but the business has changed with each generation. Rather than saddle their children with unwanted companies, each generation has sold off the family enterprise and gifted the proceeds instead.

Any heir who really wants thefamily business should be invited to bid on it—but, to avoid charges of favouritism, they should pay market value. “Risk capital is the key to the process,” says Deans. “If you don’t buy shares at market prices, you don’t properly value the company. You stop looking for threats.”

Deans worked in banking and government relations before joining his father’s plastics business in 1999. As president, he worked closely with his dad for eight years—culminating in their sale of the business. Today, Deans runs an Orangeville, Ont.-based consultancy that helps other entrepreneurs “rewire” their thinking and realize that selling the family business isn’t a failure of legacy, but rather a burden lifted from your children.

In his book, Deans explores 12 questions he believes every business family should discuss every year. Here are three key questions—one for parents to ask, one for kids and one for the whole family:

n Do you realize that this business is always for sale? This helps successors understand that the business will not automatically come to them, unless they want to work hard to make it happen.

n Are you willing to sell your shares? The kids need to know if Mom or Dad is serious about relinquishing control.

n Are we prepared to invest more money in this company?This forces the family to re-evaluate the business’s prospects every year. They can decide together if it’s time to reinvest or to dust off the “For Sale” sign.

The compulsion to hang on to their business “can rip families apart,” says Deans. “They tend to fall in love with what they created. I’m trying to defuse the bomb that’s lurking in every family business.”

Originally appeared on PROFITguide.com