Lessons from the family business: How to transfer your company and legacy

More than 30 years ago, Allison Barlow's mother Marilyn turned her agricultural degree into a flower seed catalog company run out of the family home. The business has since sprawled from a kitchen table operation to a key supplier of rare and specialty flower seeds and plants throughout the Northeast and Midwest United States. But planning for the future is proving to be a challenge.

Sometimes it feels like the business has exploded from its humble roots, says Barlow with a laugh. “I'm trying to rein it back in." Although she's tackled chores at the business since she was a child, Barlow moved back from New York to the family house in Connecticut four years ago to join the company full-time as director of operations and take on some of her mother's duties.

The unofficial plan was to allow her mother a semi-retirement of sorts, or rather the opportunity to focus on the parts of the business she enjoys while the younger Barlow takes care of the day-to-day elements, like running the website and catalog, tackling payroll, and looking after human resources.

But they've yet to put a formalized succession plan down on paper. “It was a loose plan to begin with, but it's seemingly a little tougher than we had thought, mainly because her expertise is needed," Barlow admits. “There's more work than she necessarily wants to be doing."

The biggest challenge, says Barlow, is retaining that rich trove of specialized knowledge her mother has accumulated over the past three decades, especially as the elder Barlow looks to step back from the business. Things like what type of fertilizer to order or when to bring in predatory wasps to tackle aphid infestations. “All that knowledge … you just don't have it organized mentally and you can't possibly give that to somebody in the same pattern," she adds.

Planning for the future

While the hurdles of succession planning can feel enervating at times, Barlow's company isn't alone.

Commissioned by RBC Wealth Management, The Economist Intelligence Unit (EIU) undertook a study of 1,051 high-net-worth individuals, including 365 respondents in the U.S., from March to May, 2018. The new face of wealth and legacy survey explores how the meanings of legacy and wealth are being redefined across regions, genders and generations.

According to The EIU research, 59 percent of younger¹ Americans surveyed say they were expected to take over the family business.

A fear of losing all that trade knowledge developed over the years is a common hang-up for family-run businesses when it comes to planning for succession, says Nora Yousif, a financial advisor with RBC Wealth Management-U.S. in Easton, Mass.

“The big challenge is letting go," Yousif says. "Feeling confident the next generation can take over and giving them the wherewithal to be able to learn on their own."

Yousif, a third-generation financial advisor who still works alongside her stepfather, Kevin Williams, and step-grandfather, Avery Williams, says she knows first-hand the importance of putting a succession plan in place. And it's a message she's constantly trying to communicate to her clients who run their own businesses.

“It really has to be in writing," says Yousif. “Not just for your business' sake but for your clients' sake … what if something happens to the older generation? Then what? There definitely should be some basic planning."

The 2017 RBC Wealth Management Wealth Transfer Report found just 39 percent of business owners have a transfer plan in place.

The idea, says Yousif, is to turn an honest discussion into a concrete plan, one that includes expectations from both the current generation and the generation taking over, as well as how to carry the “common thread or goal of the practice" forward. In addition to examining how to prepare clients for the changeover in management, a succession plan should also look into legal and financial considerations like retirement income for the outgoing party, sales agreements, and tax implications.

Plan for the unexpected

Yousif says it's also important to talk about risks, such as the potential death or ailing health of the business founder and how that could interrupt the business.

“The beauty of having a family business is you have more leeway and patience and understanding of those types of life situations that come up," Yousif says. In the case of her own family wealth management practice, she says her step-grandfather had the foresight to delve into tougher subjects like death and continuance of the business. Both Williams – step-grandfather and stepfather – have diabetes.

“Diabetes puts a limitation on longevity," says Avery Williams. “We have (a plan) in place … we know if he were to drop dead tomorrow, Nora is going to be able to step in, (but) it would be very tough, we're aware of it."

Williams says that after 60 years in the industry, he's moved on to an advisor role for his son and step-granddaughter. “I give philosophical direction; my son and granddaughter know the intricacies of day-to-day operations better than I do now," says Williams. “What am I doing coming in at 83? I like a reason to get out of bed in the morning."

But the key to successfully transitioning the business between generations is communication – whether you're a small team of three or a business with 120 employees. “Go over the future of the business regularly," says Williams.

Succession could be beyond family

For some business owners looking at succession, it may make sense to extend the search for new management beyond the family or sell the business altogether. But at least in the case of the Barlow business, selling is not a route the mother and daughter plan on taking. For one, Barlow says, the knowledge tucked away in her mother's mind is the backbone to the company's success. Even selling the assets wouldn't come close to returning the value put into the business over the years.

The seed catalog company does have a part-time employee who studied horticulture and covers a lot of the research and writing component for the company. “She's doing some of our trials this year in our personal garden," Barlow says. That allows Barlow to focus on the operational parts of the business, while allowing her mother to move closer to her retirement goal.

But the lack of a succession plan still hangs over her at times, Barlow admits.

“The plant growing part is the hardest because I can't do it," she says. “I would not be able to manage a greenhouse on top of everything else – little by little I'm learning it, (but) it's just not possible in the long run for me to take over that part … so she's kind of stuck."

The Barlows have already made the decision to keep their company in the family and the younger Barlow has proven she has the wherewithal to steer the operational side of the business. They're well on their way to putting a succession plan in place – the next big challenge will be learning how to let go.

¹“Younger” is defined as people in Generation X or the Millennial generation, born between 1965 and 2000.