Managing a family business is difficult enough when the founding generation is still alive. When the founders pass, however, the legal, business and family issues become much more complex because the adult decision makers that everyone relied upon, respected, and listened to, are gone. The children of Robert Smith – Mary, Josh and Matthew – are gathering a few months after their father’s passing to remember him and discuss what to do with the family business, Smith’s Fresh Foods, Inc.
The Next Generation May Not Be Aligned
Each child inherited an equal interest in the company, much to Mary’s dismay because she anticipated being the sole heir. While Mary is considering whether to challenge her siblings’ rights to the business, she has decided to set that task aside for the moment in the interest of considering what is best for the family and her father’s legacy.
Matthew, the youngest sibling, has no interest in operating the family business. It holds too many memories for him. While he has worked in the business for several years, he suffers from certain chronic disabilities that make further full-time work impossible. He would like to sell his interest to his siblings, reap whatever profits he realizes, and focus on his health for whatever time he has remaining.
Mary and Josh would like to continue the family business to burnish their father’s legacy and grow the company into a much larger and profitable enterprise. They care about Matthew, and want to make sure he has all he needs for the rest of his life. Despite working in the company for quite some time, none of the children has a sense of the exact value of the business or even how to evaluate it. Being a private family-owned venture, dad kept all the details to himself.
While Josh is focused on continuing the business the way dad operated it, Mary hopes to expand the company’s reach beyond its current focus on brick and mortar grocery stores. She has several ideas on how to expand the business, including selling wholesale to restaurants and developing an app for on-line orders and delivery that she hopes will significantly expand the markets the company serves.
After talking for a while, Mary, Josh and Matthew realize they may need help sorting out these issues and ones they may not have foreseen. They reach out to an attorney, Lonnie, who helped their father Robert with several business issues in the past, to see what he recommends.
Leveraging Advisors When Navigating Competing Interests
Lonnie quickly realizes the siblings may have conflicting objectives and interests. After a lengthy and cordial meeting, he recommends they each retain separate counsel to get specific legal advice concerning their own individual goals. During the meeting Lonnie does pass on some thoughts and friendly recommendations to Robert’s children to point them in the right direction:
- Many financial consultants provide business valuation services. Some specialize in particular industries and fields, like food service. Lonnie provides the siblings with a few referrals so they can explore having a valuation performed to assist with setting a value on the company. This could help with buying out Matthew’s interest if he indeed decides to sell his shares and move on.
- Because Matthew suffers from certain physical disabilities that could impact his decision to sell his interest in the company, Lonnie refers him to an attorney who is well-suited to represent him in a buy-out in light of his special personal needs. It just so happens the referral is to the same attorney Matthew has been speaking with about potential conservatorship issues.
- Lonnie suggests that Mary consider the intellectual property issues associated with the new online business model. Her description of the venture suggests she may have ideas worthy of trade secret protection. She may also want to protect the new wholesale brand she hopes to launch by filing trademark applications with the U.S. Trademark Office. Lonnie suggests that Mary may want to protect certain business documents and the software developed for the app through copyright law. He encourages Mary to schedule a further meeting to discuss these issues, and to ensure the new venture will not infringe on other intellectual property rights.
- Lonnie can tell that Mary and Josh are not only at odds over the direction of the family business, but also over who will be in control. He suggests that they may want to consider working with a neutral mediator to discuss the roles each would like to play in the business going forward, sort out their differences, and plan a course forward in the least combative way possible under the circumstances. Lonnie provides them with the names of several mediators who have experience working with family businesses.
The siblings agree to explore each of these options and meet again to discuss how best to move forward for themselves and their father’s company.
Many people face obstacles similar to those faced by the Kolton family. If you’re one such person, you are not alone. Others have survived such ordeals with the assistance of able professional advisors. They are here to assist you.
Financial professionals can help guide you through any number of obstacles including valuing your business, projecting an estimate of future profits, understanding your accounting and inventory, resolving tax issues, or providing advice on how you can improve your business.
There are also many different types of attorneys available to help you navigate the legal issues you will likely confront. If a brand or technology is critical to the success of your company or new venture, consider speaking with an intellectual property attorney to make sure you are not losing an opportunity to maximize your value or prevent competitors from entering your market.