Bringing family back to join the business and how to go about it?

[Randy88]

I can't be the only one to have done this before can anyone shed some light on how to go about it and not end up with a total nightmare situation. My son is wanting to come back after college to join my business, we've hashed this over plenty and not sure how to go about it or when to do it. I've always wanted him to go off first to see just how things are out in the world to then know maybe dense dads not so bad to work for, he's had a job working part time during the school year and full time during the summer for an implement dealership as a mechanic, which is what he's wanting to do, pull wrenches that is, but as he grew up he's also an excellent equipment operator, better than that even in my opinion and he's smart enough to go onto bigger and better things, like engineering or a teaching position or really whatever he wanted to do, but this is his chosen path so I stood by and was supportive. He's wanting to come back and pull wrenches for me and also run a shop out of our operation along with being an operator during the season and help take our business to the next level, which could be a really good thing, I'm wanting this to become a reality, just not sure how to go about it and keep things moving forward.

We've discussed him keeping his current job but limiting his hours to either 3 or 4 work days and then come to work for me on his off days, the current employeer is wanting to hire him full time and then some, as many hours as he wants in fact and has offered him somewhat of a generous wage to keep him. He doesn't like it there and they haven't treated him the best so far, but like I told him get used to it, every job has its downside and problem areas, just different problems with every new job that comes along. We've also talked about hiring him fulltime right out of school, the problem with him keeping his current job and working for me is they are 3 hours apart and he's tired of driving, which I can understand. We've also discussed him finding a part time job pulling wrenches around here and working for me part time as well. I guess whats bothering me is to hire him right out of college and we gear towards that and then later he "thinks" the grass is greeener somewhere else and leaves me hang with an expanded business and then I'm forced to either downsize or deal with hired help, neither of which I'm too keen on doing.

We've always tried to help our kids but so far thats backfired big time and come around to bite us in the ass, with this son, I'd truely like to see come back and either work part time, full time or be a partner someday or even take it over, none of the rest of my kids are really interested, so how do you do it without losing a son over the deal. My wife is wanting him to come back as well, even pushing pretty hard for it in fact, I get that but how to make that transition to the next step and how to avoid the pitfalls that are to come?

 

[JBGASH]

I am in the exact same situation with very similar issues. We have decided to try it and see how it unfolds on our own and hope for the best. Maybe we can also get some positive ideas from this thread to help.

 

[90plow]

Well I am the son that came back to work for the family buisness. I went to four years of school and decided I wanted to follow in my fathers footsteps at the end of it. I was going to be a cop when I got out but after my internship with a sheriffs dept I swore I wouldnt do it (times I regret that also). I love working in construction and weve been steadily epanding. I was only salary till the beggining of the year when I wanted more and the offered me a percent share on jobs I landed. Everything works well between me and my father but that might also have to do with my temperment and my fathers as well. If my brother was in the same position it never would have worked. I have to check my self at the door sometimes and realize he is still the boss and its still his business, equipment, and risk that are on the line. Just have to make sure he knows your the boss make him earn every thing he gets, but at the same time realize he has the potential to be your greatest most trustworthy employee and future owner of your company. Dont let arguments get out of hand!
Good luck
Eric

 

[Stevenbrla]

Randy,

"I guess whats bothering me is to hire him right out of college and we gear towards that and then later he "thinks" the grass is greeener somewhere else and leaves me hang with an expanded business and then I'm forced to either downsize or deal with hired help, neither of which I'm too keen on doing."

I haven't been in this position, but the one job I had that I really didn't want to leave was the one they giving me stock in the company.

Not suggesting any particular way, but I would suggest that the way to "keep" him is to (maybe gradually) sell or give him ownership into your company... all of which is to be surrendered back to you if he chooses to leave... aka golden handcuffs... keeping the grass greener on this side, and keeping him motivated in building the business "properly" (whatever that is) so that he can reap the rewards long term.

Sounds like a great thing to pass your biz to your son. Good luck!

 

[koldsteele]

My dream has been to to pass my gig onto my sons or at least one of the two ...They both have worked with me under easy days and full scale battle days ...when both of my boys expressed they wanted something different I understood .......I've alaways told my boys to be happy in work and Life will be smoother when your doing sometthing you want to do vs. something you have to do....

Well ones a stone mason and the other is an electrician ...There both happy and to me thats all that matters...


thats cool that your people are coming back ..

 

[Randy88]

We've hashed this over so much as to how to go about it that we find we're having the same converations again, with my wife and I that is. We've considered having him buy into the business so he's got something to lose or bills to pay, we've also considered a good salary and sell him a piece of equipment at a time to keep his debt low and money coming in, we've also talked about making him work his way up so he knows what its like to have nothing, another way is to have him buy the next iron we'll need to help the expansion, that way he's doing it on his own and not being given anything or being shafted by buying ours, as they say there is no easy or simple way to go about it.

He's been an operator for me on every piece of equipment I've ever owned, he started at age 4 on skid steers and by age nine was building government approved ag terraces, he's a natural on any piece of equipment, as they say some have it and others never will, a natural talent that is and he's got it no matter what the job or machine, with the ability to figure anything out on his own, we both have a differnt styly and way to go about it but the end result is the same. I don't want to hand it to him, he needs to learn what having nothing is and to know and appreciate what good times are as well. Others have done it and I would appreciate any imput, either positive or negative, and thanks to those that have already replied, every bit helps.

 

[grandpa]

I would assume ( bad word) that your son is about 23 or 24? Not even gonna ask you your age Randy LOL. What im getting at here is life goes by pretty fast and soon your gonna come to the end of your streak Randy, then what are you gonna do with your business?

If you allow that senerio go where you own the business and want him to have it,, tax laws won't allow that to happen without major tax implications. Your accountant is gonna tell you at that point Randy, you ca
n't even GIVE it away to your son fast enough to keep about 30% of it away from the government.

Bring him in, incorperate, make him earn share's in the business and go from there,, if it doesn't work out you still have controlling interest in the business and can manage your own outcome,,,, if it works, well in a few years when your ready to let go of the rains, he can buy out your remaining share's. Good luck, Gramps

 

[biggrader]

Randy, First check your states tax laws as far as 'gifting' away the business. What we ( my brothers and I) did was have my dad incorporate and then he could gift a certain portion each year to the sons without huge tax implications. In our case it took like 6 years for him to 'gift' the business to his employees. (aka. the sons). Also in our case there are other siblings involved so they have to factored into the equation. My parents set up a will to take care of the 'other kids' and also not financially strap the business if ,god forsaken, something happens to our parents.
As far as having him buy some additional equipment, there may be some problems that come about because of that. If he has to make payments on a piece of equipment and you have him spend all day running yours ( and not making money with his) there might get to be some hard feellings. If this is the way u want to go, set up an appointment w/ your accountant and establish a fair business value, and then have your son buy into the complete operation.
Please dont think I am trying to run your business, but........Business family transitions can be a very touchy subject, both family wise and tax wise.

 

[Randy88]

Ok guys if he'd buy in say at a 10 percent level right from day one, should he also receive a wage or just 10 percent of the profits? or at a 25% level or however we set it up, I'm not ready to retire by a long shot yet, several decades in fact, so this is going to be a long time coming, or do I pay him a really good wage for a few years so he can use the savings to pay down on a percentage and have little to no debt when we do it later on? I'm not yet in the position to gift him much of anything, I"m still working on paying for stuff myself. This is some of the delima we have been facing, if my entire operation was debt free and I had savings in the bank, say in another 10-15 years I could just gift some to him and get him started that way, but for now, is it better to have him keep a job and work part time for me in hopes he can save something or wait unitl I am financially able to gift some to him so he can do this with a lot less debt and until then he can work part time and I'll pay him a very generous wage for the hours he works for me?

We've looked at incorporation before and we've considered several corporations in fact, one for me and another for him, he could buy a machine we need and I'd literally rent or lease it from him to make his payments and then pay him a wage on top of that, it would help him build equity and also give him some cash flow even in a bad year and have some money to put towards other purchases, it wouldn't be a gift so to speak, not yet anyhow, but give him the chance to run and manage his own business and get used to dealing with banks and creditors, if things fall apart there shouldn't be any hard feelings, he has his own equipment to sell or take with him, nobody gets shafted on anything.

We've met with our attorneys and all he said was, everyone is different and he could do about anything we wanted to do, but first to figure out what that was, he gave several examples and said whats been done in the past by others and how it worked out, but thats about all, a lot of what we've talked about came from him, but which way to go and how to go about it, thats the million dollar question.

We've talked about giving him some older pieces of equipment, those that are depreciated out and not worth much and he could trade them off for something better or keep them and fix them up and incorporate on his own and we'd lease or rent them back to give him positivie cash flow, but keep in mind those are not tens of thousands of dollars worth of machines either, its low budget stuff sitting around not getting used much now and in need of repair or updating.

Next question is should he work outside in the real world awhile to find out how bad it is there and give us some time to prepare? and also for him to build up some equity and form a plan on what portion he wants of the business, right now, I'm going to have to expand to bring him back, into something more than what we are doing now, its not like I can step aside and let him take over, I'm 20 some years from retirement myself and our operation is setup for us, not another person or maybe even a family to draw from it. We're a small mom and pop operation who has some of our kids to help out as they are still at home, as they leave we just deal without them, we don't hire any outside help and don't really want to either, I've gone down that road and this is how we like it and plan on staying, if expansion comes, someone else is going to deal with hired help and take care of them and those problems, not me. Thats why we were thinking two corporations and some sort of lease or rent back type deal, that way any expansion could be his so to speak and if he decided its not for him we would just go back to how we were before and life could go on, who knows maybe one of the other kids or their someday spouse would want to join the operation we don't currently see in the works yet, the thing I do know is life has a way of surprising you and from one day to the next things change in a hurry. Also that way if a divorce were to happen, this is what our attorney has told us, even with a corporation things could get ugly, and if its not our corporation, so be it, its not really our deal to worry about or fight over or get tied up in court either or vaules or shares or percentages or whatever. Keep the input coming people I appreciate it greatly, I'm not the only one to make mistakes and hind sight is 20/20 so tell me what you'd have done differently when you brought your kids back into the business or sold it to an employee or whatever.

 

[Monte1255]

Randy:
have you considered a lease to own scenario? My folks and I went through this whole thing a few years back and like you my folks didn't want to see me loose everything due to bank payments, also on the same note they didn't want to make it easy on me either. which in my opinion is still as it should be.
The way that it worked out was that I was to buy/lease the personal property from them, in turn I was given control of the business with Dad acting as the overseer for the first few years. When the agreed apoun price was reached then we would either go contract for deed on the real estate, or we could agree on the lease for the next duration of years till that amount was reached. In the mean time if there came a point where I had screwed up and couldn't make it financially, he would take control of the business again relieving me of the lease payments, but the bank payments from equipment purchases that I had made in the mean time were to be all mine and mine alone.

Here is the end result
lease payments were 100% deductible as business expense
next generation is able to get into business without massive overhead
lease payments never changed, could be counted on to be a fixed expense.
lease payments were easily spread out over large period of time which helped Dad not have to pay one huge lump sum of extra income taxes........
I could borrow against the lease to own equipment with co signature at the bank for equipment purchases.

what it did to give me incentive to work hard was to make me responsible for my own incurred debts and any credit accounts. It allowed me to realize my own ideas on how to change and grow the business without too much interference from "upper" management, but at the same time I have many times run ideas past Dad on things that I was not real sure on. Usually in such circumstances the mere "talking it out" usually made the idea make sense or made it clear that it was an idea not worth pursuing.

The hard part for some is the trust factor. you have got to trust him to make the right decisions, but the rewards for him are the increased ownership as he reaches certain milestones. IE paid off personal property minus any equipment (IE shop tools) then paying off equipment, then real estate...........and so on.
AS he pays off through the lease agreement, the "steps" you give him the paid in full paperwork.

all in all it is still like buying shares in the business, but without a lot of the tax implications.

As for divorce situations and etc. you still own the business, and if ten years into this agreement things don't work out with the daughter in law or whatever your son would only have to split with her the portion that he owns if any "step" is paid off. He couldn't just up and sell the business without consult from you either.

I know some here are going to squash all over on me for this post, but believe me it works beautifully. and it is a good way for the second generation to learn what it takes to make a business go. All you need to do is outline your terms, and his responsibilities.

Something to consider

 

[Greg]

My youngest decided to come in with me at the ripe age of 23. Strong headed, never able to tell her anything her whole life. Could not grasp the we do it "Dad's way." I am in a very "clicky" business and if anything goes wrong on a job everybody knows about it. If things go wrong, and up to now they have not any where, the whole customer base as well as what competition I have left knows about it. It would not be my help that screwed up, or my company, but me that screwed up even if I was half way around the world on another job. Long story short, after three monthes she got fired and put on an airplane home from Texas at her own expense because she could not follow orders. Needless to say her mother, my wife was not impressed when I got back and told the REAL STORY of what happened. Think long and hard before you give it a shot. It can be either the greatest thing of Dad and the kids working together or turn out to be the worst mess you can imagine.

 

[Randy88]

Thanks montel, nobody had ever told me that approach to take, I'll have to think about it some more and ask questions when I have some, thanks for the imput.

Greg, believe me I've got a few kids just like the one you described and I'm not going to involve them right now, maybe if they marry someone I could work with or "mellows" them out over time, but this son isn't that way at all, not when he's been working for me but his girlfriend/fieance is whats bothing me some, thats where the comment about divorce and having two seperate corporations came into play, that way its more or less his business that would be on the line more so than mine, if everyone paid either his or mine when it came time to settle up on bills, I'm also in a small area where people talk and know everything, this is also the first suggestion my attorney came up with as well, he's local and I didn't ask why he offered it as an idea or not but its what my wife and I assumed was the reason.

I've got another thread going in the backhoe section and asking questions there, I could have him buy one of those to do that type of work, which he's good at and also some short line equipment to go along with ours and as the jobs come in I've already asked some customers about seperate billing for the same job, part goes to me some to him and everybody perked up and said no problem, as long as the bills the same in the end, they didn't have a problem with writing two checks instead of one, they were more upbeat about him coming back to continue on our business and have him around to do some of the work as well, everyone likes him and so far that just might work out, any idea or thoughs on this approach? People will know whats mine or his and when he's doing or running mine I'd just pay him, the chance any business takes in the jobs that come in, no favorites or anything like that. That way he has a paycheck every month and also a business venture of his own at stake and to get used to payments on his own and to represent his own business, if things go good I could always sell shares in mine or gift them or whatever, if it fails and he decides five years from now its not what he or his then wife want to do, well, just sell it off and we keep doing our thing.

Right now I'm not worried about tax implications, not until we get further into this and find out he's wanting most of or all of our business, right now we are concerned with him getting his feet wet and running any business and maybe coming up short at the end of year or having extra expeses that didn't see coming or had budgeted for, you know like any business does, but most people don't like kind of a life and would rather just have a paycheck every month and no worries, up until now thats been his life and has never seen the other side of it personally. Thats also the hesitation about bringing him back right out of college, the grass always looks greener on the other side of the fence, should he work on the other side some more to see first hand while helping me at the same time some? Ownership always sounds good at first....... until your there and then think, god I could have my weekends free instead of having to repair this machine because monday morning I have to be to the next job or I'll look bad and upset a good customer.

 

[Monte1255]

Randy
all I know is that the lease idea, set up in a legal agreement, which expressly details his responsibilities and yours will work well if you two think alike and have the same common goals. If you are worried about the future with a fiancee, this sort of plan would put the responsibilities entirely on your son to make it work, if he wants the business, and probably teach him diplomacy at the same time. (as it was with me as well)
hope all works out well whichever way you decide to go.

 

[Boss]

Very good thread, I am in the same kind of situation. I would be the son, wanting to get into the business. I am and have been working full time for the family business, holidays and weekends included, so I am putting in my time and enjoying it. I really do think this is the best way to get to know your work and also show the owners just how dedicated you are. Now keep in mind I am only 20 right now, so have been out in the field since I first could go into the union, before that I was a shop hand in the summers. Probably the hardest thing about my situation is that my dad owns the company with his brother, so he brings in an added factor with the buy out. Also if I do get the chance to go into the business I would like to expand, which might be a touchy subject, but I think if I could find the work for the added equipment he would be fine with it.

Can some of you give me an idea of what size your companies are that you are talking about shares to get ownership? We are not a huge company, but also not to small, roughly 30 union employees.

 

[biggrader]

Randy, Just off the top of my head I can see one problem that may need to be addressed as far as having 2 checks written, Insurance. If he is receiving profits from a job ( in the form of a partial payment) he will probably need to have his own liability insurance. If , heaven forbid, something happens at a job site and the courts and lawyers get involved, that may put him in pickle if he is running under your liability insurance but he is recieving the proceeds as a contractor. May want to check that out. If you have already talked this out disregard my thoughts. (most people do!)lol
We too had a talk with our lawyer when we first started talking about this. She basically said the same this as yours, 'however you want to do it, I will make it so.'
As far as having him work for someone else, there is a couple of thoughts that way.
1.) If he works for someone else he will earn some valuable knowledge on how others do it and why its done that way. Hopefully he can bring some of that knowledge back to your company. However he will probably have to be with that company for many years to be privy to that knowledge. Can you ' afford' to be without him for those years?
2.) If he comes and works for you right away, he will learn how YOU do it and there may be less conflicts on how the both of you go about the same project.

 

[Monte1255]

Biggrader:
To add to your statement on "how you do it" something to be said would be "why you do it this way or that" each business is unique and the why is just as important as how IMO.
very good points Sir:notworthy:drinkup

 

[halfshack]

i didnt read your statement at the start, been threw it, you said family........ im a third generation,and there was no room for me,im now oposition. and now there is some regrets... for them, haha, few simple things, buisness is buissness, pleasure is family...everthing is above board and discused. who ever signs the checks.... also is the buisness.... got that. some time things have to be said in a proper maner, do not favor. do not, like iv said before... everyone can benifit, if they cosintrate at the task at hand.so will you, on the other hand.....goodluck with that