What does selling the business do to the family? A family business sold after decades of hard work does more than leave the family with a fortune. It leaves them with a new challenge. Who are we without the family business? What do we do with the money? The sale was years in the making. But who prepared the family for what comes after?
A family business is more than an asset
For thirty years, almost every conversation at the kitchen table was about the business. About the new factory hall that ran badly behind schedule, about the revised strategy that had yet to bear fruit. Now those worries have vanished almost overnight, and a substantial sum sits in the bank.
A family business in which family members have a say in everything is therefore about much more than money. Researchers call this socioemotional wealth: the non-financial value a family derives from its business. Influence and identity. The name on the building that everyone knows. The place where the next generation learns what work is and what responsibilities a family business brings. The family business is the reason the family stays together. That is why many families keep investing in the company, sometimes even at the expense of the dividend. They know the market. The return they make is tangible. The business binds. In every sense of the word.
Wealth has no name on the building
After the sale of the family business, something fundamental changes. The business was indivisible. It belonged to the family. More than that: the family business was the family, and the family was the family business. The wealth that exists now can be divided. The family business had a head office. The wealth sits with three different banks. Each branch of the family has its own share. The family business called for the family to sit down together on complex decisions. The wealth is now split by branch, and each branch can go its own way without ever needing to speak to the others. Sooner or later the wealth fragments, because through three branches and several estates it becomes dozens of smaller fortunes within a few generations. That is where the risk of unwinding lies. Not so much that the wealth evaporates, but that it no longer asks anything of the family. And that eats away at a family.
Who are you without the role you played?
Research shows that founders who leave their business do not experience the separation primarily in financial terms. It is about their role and their identity. After thirty years as managing director, you are no longer one the day after the sale. There is no new title waiting. The paterfamilias often feels it first. What does he say when someone asks, ‘So what do you do all day now?’ Who are you without the role you played? The same applies to everyone who worked in the family business and is suddenly ‘free’. This sense of loss sometimes leads to another company being bought within a year, often in an entirely different sector. Not because the analysis stacked up or there was a strategic vision behind it, but simply to fill a gap. A price is paid for a new role and a new identity.
The opposite is just as common. Anyone who builds a business is usually an optimist; otherwise you would never start. But after the sale, that flips. Where the family business took risks for thirty years, the wealth now available is approached in an entirely different way. Families become risk-averse, afraid of losing what they now have. The wealth becomes something to protect for (read: from) the children, rather than something to build with them. That is the quietest way wealth unwinds. Not the money disappearing, but the trust.
What is the wealth for?
Research by Vrije Universiteit Amsterdam shows that in more than 85 per cent of cases, the loss of family wealth across generations is not down to the markets or to returns. It comes down to three things: poor communication, unprepared heirs and the lack of a shared purpose. The last of these is particularly stubborn. If no one knows what the wealth is for, everyone constantly wants to do something with it. And then it unwinds, slowly but surely.
How families come through this well
Well before the sale, they ask themselves the question most people only ask afterwards, and some never ask at all: what will this wealth be for? Put simply, they give the wealth a mandate. That might be a new business or a foundation, and usually a joint investment policy. This often goes hand in hand with a family charter that sets out the family’s values and rules. Giving the wealth a purpose is the key. Where the three branches are free to make their own choices after the sale, they can also decide to give the wealth a shared mandate. Some families set up a family office to do this. It starts as a conversation at the same kitchen table.
A family with a family business invests around the business. The return comes from the business itself. A family without a family business invests with a return target. To do that, it has to build up knowledge and expertise, and that does not happen overnight. The family office becomes the family’s new business. The business that will carry out the wealth’s mandate.
The question that belongs before the sale
Should we sell the family business or not? That is not the question. For some families, selling is the best decision they make in fifty years; for others it is not. More than two thirds of Dutch business owners want to exit within ten years. One in five opts for a phased sale. That means hundreds of families who will discover in the years ahead that a business binds, and that wealth does not do so of its own accord. Structure can be bought. The bond cannot. The family has to organise that itself, ideally before the sale, while there is still something that holds everyone together.
So do not ask: what is the business worth? Ask this instead: what is our wealth for once the business is gone?