Managing family dynamics in a business setting can be a delicate balancing act. When preparing for a significant liquidity event like selling the company, things can get even thornier.

As a Private Wealth Advisor at Capital Group Private Client Services, I’ve seen firsthand how the intricate web of relationships and emotions can create challenges that require careful navigation. All told, it's essential to set clear expectations and communicate effectively. By addressing concerns and uncertainties openly, families can overcome potential conflicts and achieve shared goals. 

I’ve worked with many clients as they’ve transitioned out of their businesses. Here, I will walk you through some of the most common ways that business owners complicate their sales and will provide guidance on avoiding these mistakes.

Communicate with family employees as you get the business ready for sale.

If you employ family members, it’s important to ease their minds as you ready the business for sale. You want to avoid valued employees seeking work elsewhere if they’re unsure that they will have a role under new ownership. 

Things can get more complicated if you employ family members who are not everyday contributors to the business. I would encourage business owners to have a respectful, direct conversation with these family members to set expectations about future cash flow. You may choose to offer them a lump sum when the business sells or create a trust of which they will become the income beneficiary. 

It is better to set expectations early rather than leaving it up to the family member to speculate. The longer they develop their own assumptions, the more emotionally connected they may get to their expected outcome.

Check in on family members who are not involved in the business.

If a business has been in a family for generations, it’s common that some siblings will be involved in it while others are not. This can result in jealousy when the business is eventually sold.

A common scenario involves two siblings buying out their parents and later selling the business for a substantial profit, leaving an uninvolved sibling feeling slighted. It can stir angst and jealousy if the next generation has taken the business to new heights. 

There can be ways to mitigate any fallout. First, communicate with close family members ahead of the sale so they’re not blindsided by the sale price. Transparency up front can make family members feel valued and help avoid outrage over secrecy down the line. Next, gather documentation to explain the higher sale price. Illustrating the company’s value to those not involved in its inner workings can foster a sense of fairness and understanding. 

If you’re passing your business to only some of your children, you can take some equalizing measures to help avoid these dilemmas. For example, I've seen business owners leave a family home, an insurance policy or other investment to kids who weren't involved in the business.

It’s possible to create a dynamic where everyone feels valued. By communicating clearly, family members on the sidelines will be cheering for the person who owns the business to do well.

Manage your children’s expectations around inheritances.

Proactive communication is also imperative when discussing inheritances. After a major liquidity event, heirs might have a different idea of what will flow to them than those who hold the wealth. Parents may want to shield such information from young adult children, but we encourage clients to talk openly as soon as possible. 

There isn’t one right way to do this. But when discussing what you intend to pass down to heirs, I suggest being clear about what you’re comfortable doing while tempering expectations. For example, if you’re willing to contribute toward a child’s home down payment, you may want to start by offering half or two-thirds of that amount, depending on the situation. You can always offer more later, but it can be a challenge to backtrack from a family-dynamic perspective.

This is also a good time to educate the younger generation about charitable giving. Many business owners pride themselves on being active community members. Involving younger generations in these efforts can become a catalyst for larger conversations around family legacy. I always ask clients, “Have you communicated your feelings of personal responsibility to your children?”

Overall, I cannot overstate the importance of proactive communication in matters of wealth planning. Without it, family members can make assumptions that may not align with your intentions. Significant liquidity events often encourage secrecy, but resisting this impulse can help clients avoid turning an exciting event into a messy family affair.