Preventing family warfare during a business split
By Dr. Donald J. Jonovic
THE PROBLEM: Are there ways to help keep business divorces from turning into drawn-out family warfare?
Submitted by B.P., via email:
My wife and I attended a talk you gave in 2006, and we took it seriously. We thought then that we were most of the way through transition planning. We had a buy/sell, but it was very weak and provided no scheme for how any buyout would actually work.
We were a textbook example of your family business rake structure: Dad at the top with all the authority and everyone else far below with little or no authority. The eldest son had died, so his widow (sister-in-law number one) was involved in ownership. My wife was the third child by age, second child by business seniority. I was the son-in-law/consultant with a Ph.D. in agronomy and part-time CEO/marketing director/technical director of our orchard and greenhouse businesses.
The second son was a high school dropout, pot-smoking poet laureate-type. He was also manager (in his own view, anyway) of our largest greenhouse. My father-in-law, 95, owned 1% of the equity, 100% of the vote, and caused 95% of the problems. Sister-in-law number one was the business manager (which meant she ran payroll by paying the accountant to do it). She didn’t know what depreciation was and when asked about it, she said, “You mean that button in QuickBooks you click on if you know how to fill in all that stuff? I just let the CPA do that.”
I’m not making any of this up. Your organizational chart nailed us big-time!
The rest of the family thought the business was “too large” and took “too much of their time” to run. The actual demands were mostly weekly production meetings and monthly board meetings, held to make sure that I “didn’t steal all the money.” Yes, really!
It clearly was time to sell. My wife and I offered to buy all of them out under the existing buy/sell (remember, no implementation plan).
Brother and sister-in-law number two, who owned one third, refused and said, “What? Sell the family farm?”
We then requested they buy out our one third. They refused and said, “We don’t know how to run the farm!”
So three years ago, we co-opted the remaining one-third owner (sister-in-law number one whose only income was the farm) and convinced her to join us in a structured sale.
We got an M&A firm from San Francisco to come in, value the farm as a business, and put our combined two thirds of the shares on the open market. When we actually got nibbles, Dad, the brother, and sister-in-law number two got nervous and put together a buyout combining employees, family money, debt, and a promise to sister-in-law number one of a share in future profits if she would take a small cash down payment.