Critical Questions for Family Agency Perpetuation

A Guide for Engaging Your Adult Children

Family businesses are the backbone of many economies and the heart of countless families. However, perpetuating a family agency across generations can be a complex and emotional journey. Open communication and deliberate planning are essential to ensuring a smooth transition that aligns with the goals and aspirations of all stakeholders.

During 2024 I assisted several clients with family agency perpetuation.? Given the attractive external agency valuations, family perpetuation has a heavier financial element more than ever.?There are exciting post-sale career opportunities. At the same time, a new generation of family agency professionals are bringing exciting new ownership practices and technology to agency operations.? If you have family members working in the agency it is essential to start the perpetuation discussion, even if years away from retirement or cutting back on your involvement.

One critical step in the perpetuation process is having honest and insightful conversations with your adult children about their perspectives, interests, and willingness to take on the responsibilities of ownership and management. ?Children not involved in the business should be included in these discussions, so they understand the entire picture.? If the sale of the agency – either internal or external – is essential to your retirement financial plan that should also be communicated.

Holidays can present an opportunity to bring up this important topic and have a conversation.? It’s helpful to identify the need for the conversation and set a time such as after breakfast while having coffee.? Get everyone around the kitchen table to focus on the discussion.?? Even an initial twenty-minute conversation will assist in creating open and ongoing dialogue.

Below are some key questions to facilitate these discussions and gain a deeper understanding of their vision for the future of the family agency.? Answers are not the expectation for the first conversations.? Answering these questions requires time and thought. ?The essential action is to start the conversation and develop a plan for follow-up discussions.

Key Questions to Ask Your Adult Children

1. What ideas or thoughts do you have about the agency for ongoing family ownership and control? – This question helps gauge their interest in keeping the agency within the family. Understanding their perspective on maintaining family ownership is critical to shaping the succession plan.
2. What opportunities do you see for the agency as possible? – Encourage them to share their vision for the agency. They may have innovative ideas for growth, expansion, or modernization that could influence future strategies.
3. Do you want to be an owner? – Ownership is a significant responsibility. This question helps determine their willingness to take on this role and whether they have the commitment necessary to fulfill it.
4. Does it need to be majority control of ownership? – Some family members may be comfortable with minority ownership, while others may feel strongly about having majority control. Clarifying their stance can guide decisions about equity distribution.
5. Are you comfortable with debt and personal guaranty to borrow money to buy equity in the agency? Possibly in tranches over time? – Ownership transitions often require financial commitments. Understanding their comfort level with debt and phased buy-ins can inform how the transfer of equity is structured.
6. How does the idea of a third-party owner with professional opportunities sound to you? – In some cases, selling to a third party may be the best option for the agency. Exploring their openness to this possibility and their willingness to work with or for a third-party owner can expand the range of succession options.
7. Do you want to stay working if the agency is sold to a third party? – This question uncovers their long-term career aspirations and whether they see a future with the agency under new ownership.
8. Would you be interested in equity in a third-party owner (assume an exciting third-party owner)? – This option could provide them with a continued stake in the agency without the responsibilities of direct ownership or management.

The Importance of Listening and Flexibility

These questions are not just conversation starters but a way to uncover shared goals, potential conflicts, and opportunities for alignment. Listening actively to your children’s answers is vital, as is maintaining an open mind. Their responses may reveal aspirations and concerns you hadn’t anticipated.

Conclusion

Perpetuating a family agency is a collaborative effort that requires foresight, candid communication, and a willingness to adapt. By engaging your adult children in meaningful discussions and addressing their preferences and concerns, you lay the foundation for a thoughtful and sustainable transition.

Whether the path forward involves family ownership, selling to a third party, or a hybrid approach, the key is to ensure that the chosen strategy aligns with both the agency’s needs and the family’s values. These conversations are the first step in creating a legacy that benefits future generations while honoring the contributions of the past.

?