Planning transition to avoid disagreement, misunderstanding and conflict.
by David Lively
Today at work, you probably signed a few checks, met with your Sales Manager, talked to a ticked off customer and placed an order for a container of sofas. Heck, you’ve even been known to clean the toilets. So goes a day in the life of a typical furniture store owner.
It’s all part of running the show, because you’ve been entrusted with the stewardship of your company’s resources. But one of your most important responsibilities rarely makes it to your To Do list and is missing from most job descriptions: Transition. The successful transition of these resources to the next generation ensures your lasting legacy and the security of the families who depend on you for their livelihood.
A comprehensive transition plan can be aptly compared to a team relay race. Planning and practice before the big event guarantees a seamless, clean and professional handoff when the current leader completes their leg. Sadly, many business owners watch everything they’ve spent decades building fall from the grasp of unprepared hands. A wise plan, thoughtfully developed and implemented over time, is the only safeguard against failure. Botch this transfer, and you stand to lose the gains you’ve worked for over the years.
When retirement beckons and the time for transition can no longer be denied, the typical furniture store owner will call a lawyer to draft a will, a broker to divvy up investments, and an accountant to reduce estate taxes. These highly skilled professionals are highly recommended for every business; however, they are too highly specialized in their respective fields to counsel you through a comprehensive transition of wealth as well as responsibilities to your relatives and heirs.
Transition of Wealth
Although all generations involved in a family furniture business should be involved in discussions on transition, the process must start with the elder generation. They are the ones who decide if they are going to transition their wealth, how they are going to do it, when it will be done, and with whom they will discuss it. There are only three places your wealth can go after you’ve gone: It can go to your heirs, it can be given to charity, or it can go to pay taxes. The typical plan is to divide the estate equally among all heirs while paying as little tax as possible, and to have little or no discussion about these plans prior to death.
These questions swirl in the mind of every elder business owner, but they often go unspoken:
- How can this inheritance shape the lives of future generations?
- How might this inheritance be a distraction?
- Are my heirs mature enough to receive this inheritance?
- What is the best time to provide this inheritance?
The answers are frequently indicated in a will which has been written to distribute wealth when certain conditions are met. “When Johnny turns 40…” or “Upon Susie’s graduation from college…” This approach is common, but it won’t create a legacy in the family or the family business. There are situations when it is not appropriate or productive to disclose your plans, but this does not relieve you from the responsibility of interacting with your family and instilling your vision and values for handling the estate and the family business. A wealth transition plan is an opportunity to openly discuss differences while the head of the family is still able to help resolve them.
Transition of Responsibilities
Having a plan in place to transition your wealth is not enough. Your will allocates assets, not responsibilities. You must also plan to transition daily responsibilities to your heirs and employees if you want the doors to stay open long after you’ve left the building. Experience has shown us time and time again that people do not have the same skills to manage wealth, let alone the ability or desire to run the family business. Transitioning responsibilities is harder than dividing dollars and cents or distributing stocks and bonds, because you must examine the skills and desires of your heirs:
- Can they do it?
- Who is best equipped to lead each department?
- Would a non-family employee perform better than a family member?
- Does each heir have the skillset, experience, education and talent necessary to perform daily tasks and fulfill long term obligations?
Will they do it? Do your heirs want to run the family business? Even if they possess the skills, do they have the desire? Will this be a satisfying, fulfilling career for each heir?
You may have an heir who can spot home furnishing trends, merchandise the floor and hit margin goals every time—but can’t manage people. Another can motivate salespeople and train new employees but can’t read a balance sheet. Yet another may excel at long range planning and organizational strategy, but couldn’t buy a bedroom group if their life depended on it.
One of your heirs may have been dreaming of running the show ever since they played “furniture store” as a kid, while another wants to be a dentist or join the circus. It’s up to the elder generation to develop a transition plan that matches the skills and desires of the family and communicate about it clearly with each family member.
You Can’t Take it with You
One thing we know for sure: you can't take it with you! Aging, illness or death obviously trigger transition, but many would rather ignore this inevitability than prepare for it. The tendency to shrug off estate planning beyond creating a will does not serve families well. The hand off of your family’s wealth is going to happen regardless of the steps you have taken or avoided. Ignoring tensions that exist below the surface in an attempt to avoid family conflict will only result in indignation and disunity. Addressing your concerns and sharing your insight will have a multi-generational impact on your family, and is the responsible thing to do. Begin the process by considering these questions:
- Was there a time in your life that wealth was transferred to you following the death of a family member?
- Would you characterize the process as positive or negative, and why?
- Was the process planned or haphazard?
- Were you offered guidance and advice during a transition period, or was the wealth and responsibility just dumped on you?
- Who do you consider your heirs to be?
- Are they ready in terms of ability, maturity, and character to handle the family estate?
- How ready are they to know the facts about the family business and the family estate?
- Is there the real possibility for disagreement, misunderstanding and conflict as a result of the decisions you have made or avoided?
- Could your input help resolve these before things get out of control and blow up?
- What are the actual needs of your heirs?
- Does dividing everything equally best meet the needs of everyone involved?
The Racetrack, not the Deathbed
Professional athletes spend hours each day practicing, training, listening, learning and applying their skills. In a furniture store, it’s easy to lose focus on winning the relay race and become distracted by checks that need to be signed, managers who need direction, customers who need pacifying, sofas that need to be ordered and toilets that need cleaning. Further complicating the situation in family-owned businesses are the relationships between fathers and daughters, mothers and sons, nieces and nephews. We are more than employers and employees; we are partners, parents and care givers. The depth and importance of these relationships magnify the need for a plan to transition wealth and responsibilities in family business.
The transition of wealth and responsibility should happen while our hands still hold the baton and crucial relationships are still intact. John Wesley said, “My own hands will be my executors.” The racetrack, not the deathbed, is the place for training.
David Lively, partner at The Lively Merchant, has over 20 years hands-on experience in the home furnishings industry, from the warehouse to the sales floor to the boardroom. He has walked the walk and talked the talk from the family-owned, single-site store to the multi-state, multi-million dollar operation; from sales training to computer programming; from warehouse construction and operations to financial management; from new store construction to complete renovation. Twice named to the "Beyond the Top 100" list of independent retailers and 1997 "Ohio Retailer of the Year."
David's wisdom was won on the front lines of a furniture store and his battle scars have given him compassion for counseling today's retail warrior. David’s experience has led him to address the issues of the transfer of authority, responsibility and wealth from one furniture store generation to the next. The surviving legacy of your family business depends on your plan for transition, and David has developed a system for helping to identify goals, strengths and opportunities during this crucial time.
Read more of David Lively’s articles posted to the furninfo.com website. You can reach him by calling 740.415.3192 or email him at
davidL@furninfo.com. David has offered free phone consultations to any FURNITURE WORLD readers who would like to talk about topics related to family business transition.