Family Business
Discussion
I don't really have anyone I can talk to about this particular aspect of my life and hoping to use PH as a place to rant and hopefully get some vaguely objective advice.
For a bit of background I took over my family business from my parents 8 years ago becoming MD but no shares. My parents stopped having any say in the company 6 years ago, they spend the vast majority of their time on cruises or their holiday home in Europe. For the previous 10 years to me taking over my parents had been pretty happy with things the way they where making enough profit to cover their desired income plus about 150-250k surplus profit. Which they would take every few years when they wanted a new toy. They didn't chase any growth particularly.
When I took over I found that some quite costly mistakes had been made and my parents had kind of been asleep at the wheel for quite sometime. I have completely restructured the company and designed a new range of products to replace our ageing designs, the upshot is now for the first its all starting t come good with sales and profit up over 50%.
Currently my parents take over double what I do. I have always accepted this on the basis that they gave me a phenomenal childhood, bankrolling some serious excesses in my 20s and I'm grateful that I have been given the company to run in the first place.
However I have always done it with the understanding that I would continue to pay them what they earned when they ran the company as a representation of what they achieved. What I achieved from there onwards would be my success and thus financial reward for my work. Now that there is about to be considerably more profit around than ever before my parents are talking about how much bigger their dividend is going to be. Leading to some extremely tense conversations between my father and I. Which is a shame as we get on great otherwise.
As it stands he intends to give me 30% of the extra profit which is better than nothing for me but feels like getting screwed considering the company isn't recognisable from what I was given, I very much feel that it is mine not there's which is of course irrelevant because at the end of the day they own it.
I can accept this situation for now but I have been working on a project to take the company into new markets that I am confident could grow the company by about 2-3x its current size.
It will require a huge amount of work from me though with a lot of travel, which will put incredible strain on not just me but my wife also with a 6 month old and severely disabled son who is prone to violence 8 year old at home that she will have to take strain with while i'm gone. She is happy to support me, understandably wants to do it for us not the greater wealth of my parents who by their own admission don't need the money as their pension covers all their bills.
I'm not sure how to proceed into the future if this is the way it's going to be. I have asked for shares in the past only to be told I will get them when they die (lovely) which is even more terrifying as potentially my mother could be the only share holder and we have as stable a relationship as the Israelis and Palestinians.
I could get my own company up and running in 6 months to take them on directly which I could be successful with as I have the knowledge and relationships that currently make my parents business successful. It would effectively end my relationship with my parents though.
Has anyone dealt with this kind of inter family/business situation before? I just feel a bit like I work myself to death for not a lot in return.
Or am I just being an entitled spoilt brat who needs to suck it up.
Thank you for reading.
For a bit of background I took over my family business from my parents 8 years ago becoming MD but no shares. My parents stopped having any say in the company 6 years ago, they spend the vast majority of their time on cruises or their holiday home in Europe. For the previous 10 years to me taking over my parents had been pretty happy with things the way they where making enough profit to cover their desired income plus about 150-250k surplus profit. Which they would take every few years when they wanted a new toy. They didn't chase any growth particularly.
When I took over I found that some quite costly mistakes had been made and my parents had kind of been asleep at the wheel for quite sometime. I have completely restructured the company and designed a new range of products to replace our ageing designs, the upshot is now for the first its all starting t come good with sales and profit up over 50%.
Currently my parents take over double what I do. I have always accepted this on the basis that they gave me a phenomenal childhood, bankrolling some serious excesses in my 20s and I'm grateful that I have been given the company to run in the first place.
However I have always done it with the understanding that I would continue to pay them what they earned when they ran the company as a representation of what they achieved. What I achieved from there onwards would be my success and thus financial reward for my work. Now that there is about to be considerably more profit around than ever before my parents are talking about how much bigger their dividend is going to be. Leading to some extremely tense conversations between my father and I. Which is a shame as we get on great otherwise.
As it stands he intends to give me 30% of the extra profit which is better than nothing for me but feels like getting screwed considering the company isn't recognisable from what I was given, I very much feel that it is mine not there's which is of course irrelevant because at the end of the day they own it.
I can accept this situation for now but I have been working on a project to take the company into new markets that I am confident could grow the company by about 2-3x its current size.
It will require a huge amount of work from me though with a lot of travel, which will put incredible strain on not just me but my wife also with a 6 month old and severely disabled son who is prone to violence 8 year old at home that she will have to take strain with while i'm gone. She is happy to support me, understandably wants to do it for us not the greater wealth of my parents who by their own admission don't need the money as their pension covers all their bills.
I'm not sure how to proceed into the future if this is the way it's going to be. I have asked for shares in the past only to be told I will get them when they die (lovely) which is even more terrifying as potentially my mother could be the only share holder and we have as stable a relationship as the Israelis and Palestinians.
I could get my own company up and running in 6 months to take them on directly which I could be successful with as I have the knowledge and relationships that currently make my parents business successful. It would effectively end my relationship with my parents though.
Has anyone dealt with this kind of inter family/business situation before? I just feel a bit like I work myself to death for not a lot in return.
Or am I just being an entitled spoilt brat who needs to suck it up.
Thank you for reading.
LooneyTunes said:
Will probably post more later, but they have to sort the shares out sooner rather than later if you’re going to seriously increase the value of the company… otherwise much of what you achieve could go in IHT!
Agreed, it would be handy to xfr at least some shares before the budget.You could also not expand into the new markets and just keep it as the stable business it is now, which gives a good standard of living? eg you don't _have_ to get bigger and better if it will destroy your familiy life. Divorce courts are full of blokes who worked away too much, let alone those with 8 year old with problems.
Another business might eat your lunch though.
Another business might eat your lunch though.
This is really a tax planning & IHT problem.
There are lots of ways for you to funnel money back to your parents if they need it but for them to just increase their "pile" without need is fiscally illiterate.
IANAL but maybe what you need to do is talk to them about how you all sit down together with an IFA to do some sensible & tax efficient planning so that their requirements & needs are met whilst ensuring you are all as tax efficient as possible in the short medium and long term.
It could involve the establishment of some family trust structures etc or things like discounted gift trusts, property trusts etc etc
There are lots of ways for you to funnel money back to your parents if they need it but for them to just increase their "pile" without need is fiscally illiterate.
IANAL but maybe what you need to do is talk to them about how you all sit down together with an IFA to do some sensible & tax efficient planning so that their requirements & needs are met whilst ensuring you are all as tax efficient as possible in the short medium and long term.
It could involve the establishment of some family trust structures etc or things like discounted gift trusts, property trusts etc etc
It's time to buy them out.
My approach would be to absolutely not increase the enterprise value of the business until you have a legally defined route to full ownership. You currently (unless there's something important you haven't stated) have zero control. Let's say you 3x the business and your parents decide to sell - and they also decide that for all your hard work you get 10% of the proceeds. What do you think about that?
You need to have some open and frank conversations with them. They have done their time and built what sounds like a nice business, for which they deserve to be rewarded. However, it sounds like it's now your show and if they're not longer contributing to the growth it's time for them to exit.
Do you think they'd bite?
We're going through something similar as a family atm (albeit it sounds like my parents are being a bit more pragmatic!) and I would echo that it's good to get professional advice. Beyond the actual legal /tax element of estate planning, it can also just help to have an outside, objective voice in these matters as otherwise the fact you and your parents have a personal relationship means it can all get emotional and a bit ridiculous!
I have a good lawyer I can recommend if you PM me.
My approach would be to absolutely not increase the enterprise value of the business until you have a legally defined route to full ownership. You currently (unless there's something important you haven't stated) have zero control. Let's say you 3x the business and your parents decide to sell - and they also decide that for all your hard work you get 10% of the proceeds. What do you think about that?
You need to have some open and frank conversations with them. They have done their time and built what sounds like a nice business, for which they deserve to be rewarded. However, it sounds like it's now your show and if they're not longer contributing to the growth it's time for them to exit.
Do you think they'd bite?
We're going through something similar as a family atm (albeit it sounds like my parents are being a bit more pragmatic!) and I would echo that it's good to get professional advice. Beyond the actual legal /tax element of estate planning, it can also just help to have an outside, objective voice in these matters as otherwise the fact you and your parents have a personal relationship means it can all get emotional and a bit ridiculous!
I have a good lawyer I can recommend if you PM me.
Old mindsets & conflicts with younger people have a big influence in family business.
You are mid 30’s?
How old are your parents?
If your folks are in 50’s of early 60’s they prob aren’t thinking of passing anything on yet losing their security is huge (& to some their status). I know for many the risk of children’s marriages going wrong & potential upheaval that could bring are big considerations - and something any solicitor giving advice will warn them about even if everything is rosy, similar to what happens if you die & your Mrs remarried etc after they’ve passed stuff on.
Perception is possibly
“you’re working hard now & getting well paid for it” why should they give you more”.
(If you worked for someone you weren’t related to would you command the same salary & also expect to get the business from them?)
This quite possible becomes a bigger influence if there’s siblings too as “fairness” comes into it.
If you genuinely have new ideas, is there a possibility to carve them out in a different division that you & potentially parents co own as a separate part of the business, so you can get rewarded for your new ideas & they are identifiable? This is what I see happening a bit with complicated family set ups (One I was looking at the other day a family empire with folks born in the ‘30’s & 40’s still at the helm, the generations below etc working together but splitting out the bits they each look after.
You are mid 30’s?
How old are your parents?
If your folks are in 50’s of early 60’s they prob aren’t thinking of passing anything on yet losing their security is huge (& to some their status). I know for many the risk of children’s marriages going wrong & potential upheaval that could bring are big considerations - and something any solicitor giving advice will warn them about even if everything is rosy, similar to what happens if you die & your Mrs remarried etc after they’ve passed stuff on.
Perception is possibly
“you’re working hard now & getting well paid for it” why should they give you more”.
(If you worked for someone you weren’t related to would you command the same salary & also expect to get the business from them?)
This quite possible becomes a bigger influence if there’s siblings too as “fairness” comes into it.
If you genuinely have new ideas, is there a possibility to carve them out in a different division that you & potentially parents co own as a separate part of the business, so you can get rewarded for your new ideas & they are identifiable? This is what I see happening a bit with complicated family set ups (One I was looking at the other day a family empire with folks born in the ‘30’s & 40’s still at the helm, the generations below etc working together but splitting out the bits they each look after.
Think the way forwards is to explain your thoughts on the matter, and at least attempt to come to an arrangement and buy them out (maybe not all at once)
I joined our family firm back in 2004 when it was smaller, and the turnover much less. Whilst I probably wouldn't use the word groomed, it was pretty inevitable from a very early age that I was destined to work there. So I left Uni, had a couple of jobs for about 9 years to get appropriate experience and was then approached by my parents who were then in their early 60's and were contemplating retiring. They gave both me and my sister the option of joining the firm, and I was up for it (she works in a completely different field, and had no transferable skills so turned the offer down).
They did have an eye to the future at the time, so I was allowed to buy shares for a token amount - to give me (and the future wife) a vested interest.
As it turned out, Dad enjoyed working with me - and we worked together as directors until 2022 when he finally decided at the age of 81 that he wanted to retire.
As with you, for the last 12 or so years my parents did want to enjoy life a bit more, and reduced their days to 2/3 a week - and at times, when working very long hours and splitting the sharing the spoils it did get a little dispiriting.
It got much harder still during Covid, as they made the decision to shield at home, and spent a couple of years working from home - at much reduced hours, especially as I was holding the fort at work.
What kept me going, was the knowledge that at some time in the future they were going to want to give it all up - and at that point I'd have the opportunity to buy the rest of the firm.
Fast forward to late 2021 At that point - given that I have a sister, and my parents made it clear that they wanted to split their estate 50:50 between us - and I was very concerned about certain 3rd parties getting a share in the business, I approached them and discussed buying them out.
We got a couple of fair market valuations, and came to an agreement - and then with a combination of savings/loans did the deal. It was quite a hard couple of years, but we're now through the majority of it - and now (hopefully) there's no looking back.
At times I did ponder starting over on my own, but never did - as it didn't feel the right thing to do, and hoped in the future to pass the firm down to one or both of my kids.
I think this is one of those situation's where you need to sit down and have a frank and honest discussion with them about the future. Get your facts and figures straight before you do - and schedule it as a proper meeting. Hard as it may seem, don't let things get emotional - but try and put in front of them a plan for moving forwards that works for both of you,
They're going to have to accept that you are part of the solution moving forwards and to keep you involved, share's are going to have to be on the cards - you're going to have to accept that a) it's likely to cost a bit and b) It may need to be scheduled over a prolonged period finances notwithstanding.
Hope these thoughts help
I joined our family firm back in 2004 when it was smaller, and the turnover much less. Whilst I probably wouldn't use the word groomed, it was pretty inevitable from a very early age that I was destined to work there. So I left Uni, had a couple of jobs for about 9 years to get appropriate experience and was then approached by my parents who were then in their early 60's and were contemplating retiring. They gave both me and my sister the option of joining the firm, and I was up for it (she works in a completely different field, and had no transferable skills so turned the offer down).
They did have an eye to the future at the time, so I was allowed to buy shares for a token amount - to give me (and the future wife) a vested interest.
As it turned out, Dad enjoyed working with me - and we worked together as directors until 2022 when he finally decided at the age of 81 that he wanted to retire.
As with you, for the last 12 or so years my parents did want to enjoy life a bit more, and reduced their days to 2/3 a week - and at times, when working very long hours and splitting the sharing the spoils it did get a little dispiriting.
It got much harder still during Covid, as they made the decision to shield at home, and spent a couple of years working from home - at much reduced hours, especially as I was holding the fort at work.
What kept me going, was the knowledge that at some time in the future they were going to want to give it all up - and at that point I'd have the opportunity to buy the rest of the firm.
Fast forward to late 2021 At that point - given that I have a sister, and my parents made it clear that they wanted to split their estate 50:50 between us - and I was very concerned about certain 3rd parties getting a share in the business, I approached them and discussed buying them out.
We got a couple of fair market valuations, and came to an agreement - and then with a combination of savings/loans did the deal. It was quite a hard couple of years, but we're now through the majority of it - and now (hopefully) there's no looking back.
At times I did ponder starting over on my own, but never did - as it didn't feel the right thing to do, and hoped in the future to pass the firm down to one or both of my kids.
I think this is one of those situation's where you need to sit down and have a frank and honest discussion with them about the future. Get your facts and figures straight before you do - and schedule it as a proper meeting. Hard as it may seem, don't let things get emotional - but try and put in front of them a plan for moving forwards that works for both of you,
They're going to have to accept that you are part of the solution moving forwards and to keep you involved, share's are going to have to be on the cards - you're going to have to accept that a) it's likely to cost a bit and b) It may need to be scheduled over a prolonged period finances notwithstanding.
Hope these thoughts help
22s said:
It's time to buy them out.
My approach would be to absolutely not increase the enterprise value of the business until you have a legally defined route to full ownership. You currently (unless there's something important you haven't stated) have zero control. Let's say you 3x the business and your parents decide to sell - and they also decide that for all your hard work you get 10% of the proceeds. What do you think about that?
You need to have some open and frank conversations with them. They have done their time and built what sounds like a nice business, for which they deserve to be rewarded. However, it sounds like it's now your show and if they're not longer contributing to the growth it's time for them to exit.
Do you think they'd bite?
We're going through something similar as a family atm (albeit it sounds like my parents are being a bit more pragmatic!) and I would echo that it's good to get professional advice. Beyond the actual legal /tax element of estate planning, it can also just help to have an outside, objective voice in these matters as otherwise the fact you and your parents have a personal relationship means it can all get emotional and a bit ridiculous!
I have a good lawyer I can recommend if you PM me.
This is pretty much what I was going to post. My approach would be to absolutely not increase the enterprise value of the business until you have a legally defined route to full ownership. You currently (unless there's something important you haven't stated) have zero control. Let's say you 3x the business and your parents decide to sell - and they also decide that for all your hard work you get 10% of the proceeds. What do you think about that?
You need to have some open and frank conversations with them. They have done their time and built what sounds like a nice business, for which they deserve to be rewarded. However, it sounds like it's now your show and if they're not longer contributing to the growth it's time for them to exit.
Do you think they'd bite?
We're going through something similar as a family atm (albeit it sounds like my parents are being a bit more pragmatic!) and I would echo that it's good to get professional advice. Beyond the actual legal /tax element of estate planning, it can also just help to have an outside, objective voice in these matters as otherwise the fact you and your parents have a personal relationship means it can all get emotional and a bit ridiculous!
I have a good lawyer I can recommend if you PM me.
I know a couple of people who have walked a similar path, but the common theme is that both wanted (and the business benefitted from) a clear transition of ownership.
Buying out parents sees them get rewarded for what they’ve done but gives you the opportunity to reset things for the future, free from concerns that you could ultimately be working for free/get screwed later. It might not be deliberate but people sometimes change as they get old even if they don’t mean to.
A buy out is also a good way to get money into the family in order that it can be managed effectively, “from fresh”, for IHT purposes.
The obvious way to play it is that you need security for yourself and your family. It’s a business and sector that you’ve grown up with and understand, so is the obvious thing to take forward.
The alternatives being:
1) To step away in order to do something else yourself in the space;
2) Agree a proper incentive plan as would be needed if they were tasking A N Other with management and growth.
A tricker option given you have no equity is to bring in new management team and just take the dividends. They do however have to be properly paid and incentivised…
Are your parents directors and/or do they control the bank account?
In the end you have do what's best for you, your wife and kids first and foremost, especially given the unstable nature of your relationship with your mother
It was a different situation but I had some business with my father and when he died my mother had absolutely no problem suiting herself. To the extent we all lost out as she just wanted her way.
Sounds like you are going to have to have a proper conversation with them to sort your future out, so if you think they could react badly make sure you have your ducks in a row first (eg if it will take you six months to start earning make sure you have enough cash to ride it out)
In the end you have do what's best for you, your wife and kids first and foremost, especially given the unstable nature of your relationship with your mother
It was a different situation but I had some business with my father and when he died my mother had absolutely no problem suiting herself. To the extent we all lost out as she just wanted her way.
Sounds like you are going to have to have a proper conversation with them to sort your future out, so if you think they could react badly make sure you have your ducks in a row first (eg if it will take you six months to start earning make sure you have enough cash to ride it out)
Panamax said:
Is there something you need to share?
Op said this"I'm not sure how to proceed into the future if this is the way it's going to be. I have asked for shares in the past only to be told I will get them when they die (lovely) which is even more terrifying as potentially my mother could be the only share holder and we have as stable a relationship as the Israelis and Palestinians."
However my mother is horrendous, but I have come to terms with that.
Namaste.
Thank you all for the responses.
Whilst reading your input I have been trying to reflect on what the fundamental issue is.
I think ultimately it’s entirely emotional. Simply put my parents think everything is great the way it is and see no reason to change. I hold no cards at all to negotiate, they can simply say no and that’s end of conversation.
It comes from a place of my parents being heroes in their own mind who started work at 3am finishing at 2am everyday living on gruel and water to get the company to where it is. I should be grateful to have a job as they had nothing at my age etc. They have next to zero empathy for anyone else, my wife for instance is a lay about because she doesn’t work, they don’t value her support at all. This attitude leads them to be very controlling. For instance my parents will on the face of it be very generous but always with things never with money. This way they control what I have.
I’m pretty sure they won’t sell to me and even if they would they keep me comfortable not wealthy. I couldn’t come up with the money. I have thought about trying to convince them to take the profits but as payment for shares, they just see that as paying them what they already should have in the first place.
To answer a few questions yes they are directors. The reason for growth is that when I took over the business my wage takes up most of the surplus profit we used to have. It’s now a bit of a fight to break even carrying us both. It was a very tidy business for one family not 2. Hence my desire for growth to continue paying my parents whilst also fulfilling my own ambitions without negatively impacting their retirement because despite the business side I do want my parents to enjoy themselves they do deserve it.
I am 33 my parents are 77 and 64.
I have been assured by our accountants I will be receiving the shares IHT free. The rest of their assets will be in various trusts etc to protect me from both the tax man and my super evil wife (in their eyes).
Ultimately they see it as I will get rich when they die and not a day sooner.
Whilst reading your input I have been trying to reflect on what the fundamental issue is.
I think ultimately it’s entirely emotional. Simply put my parents think everything is great the way it is and see no reason to change. I hold no cards at all to negotiate, they can simply say no and that’s end of conversation.
It comes from a place of my parents being heroes in their own mind who started work at 3am finishing at 2am everyday living on gruel and water to get the company to where it is. I should be grateful to have a job as they had nothing at my age etc. They have next to zero empathy for anyone else, my wife for instance is a lay about because she doesn’t work, they don’t value her support at all. This attitude leads them to be very controlling. For instance my parents will on the face of it be very generous but always with things never with money. This way they control what I have.
I’m pretty sure they won’t sell to me and even if they would they keep me comfortable not wealthy. I couldn’t come up with the money. I have thought about trying to convince them to take the profits but as payment for shares, they just see that as paying them what they already should have in the first place.
To answer a few questions yes they are directors. The reason for growth is that when I took over the business my wage takes up most of the surplus profit we used to have. It’s now a bit of a fight to break even carrying us both. It was a very tidy business for one family not 2. Hence my desire for growth to continue paying my parents whilst also fulfilling my own ambitions without negatively impacting their retirement because despite the business side I do want my parents to enjoy themselves they do deserve it.
I am 33 my parents are 77 and 64.
I have been assured by our accountants I will be receiving the shares IHT free. The rest of their assets will be in various trusts etc to protect me from both the tax man and my super evil wife (in their eyes).
Ultimately they see it as I will get rich when they die and not a day sooner.
Si1295 said:
Management buyout? You can use ER as a carrot (if your parents are anything like mine were then they hate paying tax) and, once the relief is used up, have the company purchase back the remaining (if any) shares
Excuse my ignorance, do you mind elaborating?I have no experience of buying or selling a company.
You are correct they hate taxes with a passion.
ntiz said:
Excuse my ignorance, do you mind elaborating?
I have no experience of buying or selling a company.
You are correct they hate taxes with a passion.
Entrepreneurs relief reduces tax to 10% for the first £1mil on trading companies for every person, so if the company is worth £2mil then you could have a staged buyout over 10 years, paying them £100k each for 10% of the company where they pay £10k tax, rather than £24,444 through dividends (again each, assuming they both receive basic state pension). I have no experience of buying or selling a company.
You are correct they hate taxes with a passion.
Once the relief is used up the company buys their remaining shares and your parents pay 20% cgt and the company pays corp tax +0.5% stamp duty on the amount.
All the above is using current figures.
Not knowing your situation, getting the money together to buy them out could be an issue.
You’ll be best off getting some proper advice. I’ll send you a pm with details of a lady (I’ve used her for an unrelated matter and she was v.good) who deals with succession planning for family businesses.
Edited by Si1295 on Tuesday 8th October 22:39
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