On wealth: Is this the right way to make a transition?

Not long ago the husband of a childhood friend, whom I will call Peter, ran a family business and was visiting from Europe. We met at a beach café for a late breakfast. As usual in such situations, I cannot hold back and always ask questions about his family business. I knew that 20 years ago he took over the business founded by his father. I was curious how this transition went. Peter was very open with me and told me the story of the family business from the beginning to the present. Let me share with you what Peter told me:

The transition was not easy. Actually, my father did not hand me over the business – he sold it to me! I was working in the business already for 15 years and was in charge of sales and supplier/client relationships. I was the foreign minister of the business. My father was running HR and was in charge of the logistics. With my father’s growing age, it became more and more difficult to run the business together. I brought the innovation and the new business and he was no longer ‘hungry’ and willing to put in the time and effort as before.

I started the conversation with my father about his retirement and the transition. My dad told me: I will retire, but you have to buy the business from me! We did a valuation of the assets of the business and I had prepared a 10-year transition proposal, where every year I would get a 1/10 of the shares as less of a salary/bonus. He did not want to hear anything like this. He wanted to sell the business immediately and at his price, not negotiable. My father took the valuation of the assets and added a goodwill of three times the valuation on top of it. I told him, Dad, some of the goodwill is also mine; I am the one traveling to all the clients, getting new clients and maintaining our brand name. His answer was, if he would not have started this business, I would not have anything! I had to accept his conditions, but asked myself: from where do I get the money?

Peter had to go to the bank and ask for a loan. The bank valued the business and was willing to finance 60% of the purchase price (and also commented that the father’s valuation was too high!) with a 10-year loan. Peter turned to his father and asked if he would agree to the additional 40% in instalments over a 10-year period (as Peter had initially proposed). Peter’s father did not accept. He offered Peter a loan for the remaining 40% of the purchase price – on the same terms as the bank!