Are small, family businesses harder to transition to the next generation or new ownership than larger operations? Why or why not?
My response: I see two distinctions here: Family and Small.
Family is harder than third-party because the financial transaction is usually muddied. While some parents sell the business to children outright, most are transitioning it over time. The parent thinks they’re being generous by giving it to their children for a discount. Then the children feel indebted to the parent which can create resentment for the business and their parent. Additionally, when the finances are transferred over a long period of time, the children feel, and are, responsible for their parents’ retirement. This is another heavy burden on the business and the family relations. Parents may feel entitled to offer their suggestions to children long after they no longer have any official responsibility. What are children to do: defy their parents’ wisdom or do a potential disservice to the business by following outdated advice? Finally, while the parent might formally leave the business, they may be attached forever, filling in to support the children during busy or chaotic times; think retail at Christmas, or a key employee passes away unexpectedly. It creates the perfect environment for the parent to never fully leave the business, and the children to never get out from under the scrutiny of the parents.
Smaller businesses have fewer employees for delegating responsibilities than larger ones. In small businesses, owners are often “owner operators” and therefore are required to perform many tasks, make decisions, and so forth. The solution to this problem is to create unique roles and responsibilities, making it clear how new owners can simply hire replacements. But if the owner is wearing five different hats, perhaps each hat represents only 20% of a job, then the new owner will need to hire five part-time people, or be adept at performing the exact same five roles, or hire one person with those five skills. This complicates things. Whereas a larger operation has many people with unique job descriptions. Even if, at the time of sale, the owner still sits in the role of sales manager, for example, that’s a role that can be easily replaced.
Do you agree?
