Chasing The American Dream
The United States has always been known as the land of opportunity and new beginnings. For many, families moved to the United States with limited resources and built their own businesses from the ground up. As families grew, family-owned businesses grew with them, establishing community ties and contributing to the economy.
The American economy is largely supported by family businesses, generating over 78% of jobs and contributing to 58% of the country’s GDP (Hiebert, PhD, CFP). But, what happens when a family business owner can no longer run his or her business at its maximum potential?
What can you do as a business advisor to convince your potential clients that implementing an Exit Plan benefits both the business and their family?
This blog post explores a study published by Daniel Hiebert, PhD, CFP which focused on emotional and psychological factors that contribute to Exit Planning challenges in family businesses, and highlights the importance of involving experienced Exit Planners to ensure successful transitions between families and their businesses. To read the full article, click here: Emotional Attachment and Decision by Family Business-Owners to Seek Help From a Succession Planner.
The Emotional Component: Letting Go of the Business
One significant factor compounding the problem of transition failure lies in the emotional and psychological attachment of business owners to their enterprises. Many owners find it difficult to let go, neglecting the necessary planning for a successful transfer.
In many cases, the relationship between an owner and their business becomes quite similar to a relationship between a parent and their child. Similarly to a parent nurturing their child up until adulthood, owners often build their firms from a blank slate.
When it comes time for a parent to send their child to college or into the next chapter of life, attachment anxieties arise. The same argument can be made for owners and their businesses as they grow anxious about a business transfer.
Furthermore, family relationships intertwine with business management and ownership issues, creating a complex web of emotions and goals that can hinder the planning process and further estate planning. The business becomes intertwined with the individual’s identity, making it harder to separate personal and professional aspirations.
Overcoming Emotional Barriers: The Role of Exit Planners
To address the emotional challenges associated with Exit Planning, family business owners must seek the guidance of experienced Exit Planners. These professionals possess a comprehensive understanding of both financial planning along with non-financial goals, allowing them to guide owners through the transition process.
Research from the article suggests that emotionally attached owners are less likely to seek help from planners, even though their businesses stand to benefit the most from professional guidance.
Key Findings and Challenges:
Various factors contribute to the emotional struggle of letting go and the subsequent planning challenges in family businesses. We’ve highlighted some of these key obstacles below:
- Doubt in Successor’s Ability: Owners may cling to their businesses due to a lack of confidence in their successors’ capabilities to effectively run the company. The fear of potential failure can hinder the planning process. As an advisor, it is your job to facilitate the introduction of a well-equipped candidate. Check out our recent blog, Selecting the Best-Suited Successor to the Business Owner for tips and best practices!
- Family Relationship Turmoil: Turbulence within family relationships, conflicts, and disagreements can complicate the transfer of a family business. Emotional dynamics can overshadow logical decision-making, making it harder to plan for the future.
- Heirs Choosing Different Paths: When heirs pursue alternative careers or have no interest in continuing the family business, owners may face significant emotional turmoil. For owners who have counted on their child(ren) taking over when the time comes, whether for trust or legacy reasons, it can be disappointing to have to accept the reality of giving up the day to day work that has driven them for years. Owners may struggle to reconcile their desire to maintain the business with their heirs’ divergent aspirations.
- Clinging to the Past vs. Embracing the Future: Family business owners who have witnessed their enterprise grow from humble beginnings often find it challenging to detach themselves emotionally from the business. They may view the company as a symbol of their journey, making it harder to embrace change and plan for the future.
The Role of the Exit Planner: An Opportunity to Overcome Emotional Attachments
Exit Planners have a unique opportunity to address the emotional challenges faced by family business owners. Advisors benefit from continuous involvement in the creation of Exit Plans. By understanding the owners’ attachment to their businesses, planners can qualify potential clients based on their emotional readiness for succession planning.
As an advisor, this presents an opportunity to save time and resources, or work with that owner to overcome their attachment. Avoiding Exit Planning Mistakes can be challenging, check out that blog post for tips and resources to become indispensable!
Additionally, advisors can work with owners to help them overcome emotional barriers, encouraging them to shift their perspective from the past to the future. This approach not only supports successful business transfers but also presents an opportunity for Exit Planners to market their services effectively.
You can collaborate with your clients to strategize and plan for the future, providing them with insightful recommendations on how to effectively allocate their time and resources. Owners that gradually detach themselves from the business are able to see the big picture, facilitating a smoother business transition.
The Bottom Line
Emotional and psychological factors significantly impact Exit Planning in family businesses. Letting go of a business can be an emotional struggle for owners who have dedicated their lives to its growth and success. Owners often shy away from enlisting the help of experienced advisors the more emotionally attached they are to the business.
Conversely, failing to plan for the eventual exit from can result in loss of business value, resulting in adverse effects on the company culture and value, local economy, and ultimately the personal goals for the owner’s family.
However, involving experienced Exit Planners who understand the intricacies of family dynamics and possess the skills to address emotional challenges can pave the way for a successful transition. By overcoming emotional attachments and embracing the future, family businesses can secure their continuity, contribute to the economy, and preserve their cultural legacy.