Navigating Spats in Family-owned Businesses

The Emotional Toll of Family Business Disputes

Negotiations begin and parties can dig into their positions as lines are drawn. The early negotiation stages in potentially contentious situations before litigation are extremely tenuous and fluid. When advisors are brought in, there’s typically some mistrust, and parties are on the defensive. Moves and communications can be heavily scrutinized, and assumptions made that disparage reasonable negotiations. Sometimes, years-long issues and judgments are fleshed out, and individuals want to be made whole. Emotions can flare up due to long-standing issues and personal grievances.

Chris Voss, in his book, “Never Split the Difference,” points out that our decisions are often influenced by our emotional needs for safety, autonomy, and control. This emotional aspect is particularly pronounced in family disputes over business decisions and ownership. One party may feel undervalued, while the other may feel others aren’t pulling their weight. Understanding and addressing these emotions is a crucial part of our consulting services.

Assessing Your Options: Buying Out a Family Member

We offer consulting services to assist business owners in buying out their family members. While there is an obvious financial component, our value often comes from reminding individuals of what else is at stake. Is there a risk of litigation? Can the business afford to buy out the partner? Is the offer reasonable? What’s the cost of not having this person at the Thanksgiving table?

Every situation is different, but one of our client’s situations reveals how the situation can be alleviated.

Our client wanted to buy out a sibling’s interest. We were asked to value their sibling’s interest and help explain the value; however, according to the sibling, our value was too low and instead engaged their own valuator.

In situations like this, that’s typically advisable. They came back with a considerably higher value. We took issue with some of their positions, which we felt would not be defensible in court. So, what happens next in this entirely common situation?

Negotiating a Family Business Buyout

Our position took the stance that we don’t come in with a pre-conceived outcome. We ask the client what their desired outcome is, although the value may not always align with opinion or a subjective stance. The obvious answer to “What is your ideal outcome?” may simply be, “I want to pay the least possible.” But other items need to be considered. A structured conversation is guided by topics and ramifications such as:

• If you are willing to pay $X amount to buy out your family member in negotiation, does that hold true with potential litigation?
• Will the next contemplated action cause other family members to sue? At this point, their attorney is involved to discuss the potential exposure our client has, the time and money estimated to litigate, and potential impacts on the business. You would be surprised how much the business suffers when the manager is engaged in a lawsuit, particularly with family.
• Will the next contemplated action cause the end of your relationship with the other party?
• Are employees apprised of the situation? Will key employees leave if they hear of the lawsuit? Will the other side try to get employees to leave? What kind of sway does the family member hold in the business?
• If the business buys out the shareholder, can the business afford the transaction? How can we structure it to ensure business viability?
• Any other considerations. What are you giving up, and what is this costing you by paying less?

Case Study: A Successful Family Business Buyout Negotiation

In our example, negotiations lasted for months, not just on price but also on the deal structure. The structure is as important as the value. In the end, our client bought out their sibling without litigation.

I am reminded of a saying in negotiations, “if the buyer feels they paid a little too much, and the seller feels they received somewhat too little, you probably got it right.” That is where this deal ended. Our client avoided court, can manage the business how they want to, and the seller can move on with their life with a sum they can retire on. And, by the end of the deal, they were talking again as a family and will probably meet again at the Thanksgiving table this year.

Are you a business owner who needs help buying out a shareholder? Worried that a disagreement could turn into something worse? Unsure about how to proceed or the potential ramifications of not only the process but also the outcome?

Let’s talk.