Less than 3% of family businesses make it to the third generation. That arresting factoid prefaces Every Familys Business, a book dealing with succession planning for family businesses. The author, William Deans, draws on a wealth of personal experience: he is a fourth-generation businessman and ran his fathers 250-employee chemical business for ten years prior to its sale.
This remarkable book is written in the dialogue style of David Chiltons The Wealthy Barber. It was first released in 2008 and has sold over 100,000 copies so far. Deans himself is much in demand and has done over 300 presentations around the world. He operates out of Hockley, Ontario and has a website at www.everyfamiliesbusiness.com.
When it comes to succession issues surrounding family businesses, most books and advisors deal with how to transfer control to younger family members. But Deans thinks the focus should instead be on selling the business at fair value whether it is to family or non-family. This not only assures a more secure retirement for the owner but often leaves behind greater wealth to distribute to heirs.
Many business owners want to hand over their beloved enterprise on easy terms to children as an act of love or because they wish to leave their business behind as a legacy. But for a variety of reasons, as discussed in Every Familys Business, the transfer often leads to acrimony and dysfunction within the family. It can also culminate in insolvency or a sale at a low price to a non-family buyer.
It would be better to sell. Take just one of the reasons in the book. Most business owners have the majority of their net worth in their company, yet are counting onit to fund their retirement. This is highly undiversified like having an RRSP with one stock in it. To pass the business on to younger generations would be to maintain that undiversified situation for the family, whereas a sale would result in a sum of money that could be spread over stocks bonds, GICs, new business ventures and other assets.