With the advent of nowgen or nextgen promoters in a family business, the instances of exits or a complete sale of the family business are increasing.
While for the world, it might primarily be a financial event that gives the selling family loads of cash, there is a much bigger impact on the family members which the world may not witness. The sale is usually a big emotional rollercoaster and has a huge impact on each family member.
Let’s see some very common changes & realities.
Initial Highs
The selling process culminates in a lot of financial wealth, media coverage in some cases also a lot of social visibility as one becomes the talk of the social and business circles they move in.
Some individuals feel a sense of freedom while some describe it as opening up of numerous opportunities for a change in professional and personal life. Suddenly they are courted by bankers, wealth managers, real estate brokers, and lately even immigration consultants. We hear of long holidays which were not possible earlier etc.
There is also a sense of relief as there is some financial security that gets built with cash coming into the banks. In our experience of talking to family business owners this golden period lasts almost a year or two at max (a generalisation).
Initial Actions
During this period the individual goes around meeting a lot of people and ‘trying to learn about’ new things and ideas. This also seems like a unique opportunity to increase knowledge about spaces that the person knew very little about.
We have seen people doing long foreign tours, various courses and also meet a lot of experts from some industries which are of interest. Getting to know the startup space is usually an activity that the relatively younger family members start getting involved in. This may also lead to some small ticket investments to get a taste of the market.
The big ego boost also comes from the ever-present money managers who attempt to attract individuals with various services; the list of which is big.
Suddenly, the individuals see a very different world. Many individuals do end up making the mistake of falling prey to many complex selling techniques and investing without any planning or proper structuring.
We have also heard about how family members wanted to meet as many money managers so that they may learn about the market. Needless to say, it’s not ‘teaching’ that the wealth managers and bankers are interested in.
Wealth product sellers will usually track cashing-out deals among the family business owner community even before they are consummated, with the intention to “capture” the client at an early stage.
Underlying Mental Conflict
While the initial exciting times continue or maybe sober down a bit, the biggest thing that hits the individual is about her/his individual identity. When the family owned a family business each family member was sort of attached to the business identity.
How often have we gone to a social gathering where somebody was introduced as “meet Mr./Ms/ ….they are from the family which owns the XYZ business..”.
Post the sale, for some time the individuals are still known as the “family that recently sold their business to…”. Post that period each individual goes through this phase of having a loss of identity.
Every day the person tends to keep busy with some things in an attempt to put some structure in place. With no office or meetings to attend to, people attempt to fill up their calendars with all sorts of meetings just so that there is a sense of achievement at the end of the day.
Common Mistakes
To remain viable for future interactions some individuals make financial commitments at this stage with an intent to keep the new found ‘ecosystem’ happy and in place. Since the individuals would have limited knowledge about complex financial stuff they tend to gyrate towards “known brands” just so that the downside is protected in case some wrong decisions are taken.
Unfortunately, big brands do not promise to work on the ‘investor’s behalf’, rather they has their own big-bulge targets to fulfill.
The lack of proper planning and a good understanding of the investment and advice ecosystem usually is the cause of this. Ideally, the family members should take time to understand the alternatives available before committing to anybody.
We have also seen FOMO as the primary reason to ‘quickly’ allocate money to some wealth managers (distributors). The product distributors surely have a ‘story’ often called ‘deep research’ for all types of markets and economic scenarios.
On the extreme end of the band, we have seen some family members really go aggressive and either start investing in startups so as to build their ‘angel investor’ image or even launch a venture firm.
This is actually a good thing for the startup industry as more patient money flows in but many a time the family members rush into the space without proper structuring, planning, risk assessments, and even a formal process or team in place to support their initiative. The pressure of doing more deals and hence attracting more deals is simply unending.
Change In Family Dynamics
Earlier the family members were directly or indirectly stitched together by the common family business. However, life after sale takes away a lot of engagements and interactions that were common earlier.
Especially in larger families with two or more family units, there is fewer interactions among members which over time leads to a sense of distance. Even if the family members stayed in separate housing units the office was a common space of overlap.
Some families attempt to keep the family bonding together by choosing some common causes or initiatives that keep the interaction going. Some families use the newly set up family office to plan and structure interactions via various activities.
We have also seen a quick decline in some family relationships. These happen in cases where some members were either against the sale or felt their interests were not taken care of. In instances where there is an underlying negativity in some family members, these emotions remain hidden while the family business is running or even during the sales process period.
Once the transaction happens these negative feelings usually erupt or are more openly shared. This does lead to stress and tensions in family relationships.
Planning The Exit Right
Ideally, the planning for the life after exit should be done along with the exit process. The family members should spend some time to plan or at least focus on what their life would be after exiting the business. Yes, the sales process does take away a lot of focus and energy but planning for the future does need some serious thought.
The family member/s should spend time with some Family Office advisors to plan for their ‘financial wellbeing’ in detail so that when the money comes in everybody knows what needs to be done. Also, it spares the family member from getting pushed or stressed-out in making ad-hoc investment decisions, especially when all wealth entities are hovering all around them.
The families might choose to set up an internal single family office or work with an experienced multi family office team who has hands-on experience in the space. They need to spend time understanding the wealth space and what type of an ‘advisor’ will be best suited.
The individual also needs to have some planning on what space the person wishes to explore post the exit. It might be new business opportunities, a sabbatical for further education, an active life in the startup mentoring side etc. This thinking and planning can go across the pre-exit and post-exit phases.
On the family front, the senior members of the family should plan for life after exit as well with regards to how the family will be kept together. Keeping family unity requires a common purpose and a common platform for continued engagement. This may take shape of family councils as well. Also, some family members may wish to partner in new business opportunities depending upon their areas of interest. These options can also be thought about or planned while the exit is happening.
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