Transitioning Family Business Ownership

Transitioning ownership of the family business can be tricky.  Many times, when transitions are not successful, the root cause is the people involved, not business conditions. Having the right subject matter experts advise through the transition ensures that the family is structuring the transition for success, and having a family business advisor walking you through the process can minimize the sticking points, provide a calm for passionate emotions, and help maintain unity in both the short term and the long term.

There are some common themes in family business transitions that go awry: a senior generation that can’t let go (either business is going well and it is too much fun to let go or the business is struggling and the senior generation feels like they have to get it back on track); lack of confidence in the rising generation; indecision in selecting the next leader; avoiding difficult or awkward conversations; emotional identity in the business; or a rising generation that can’t work together.

For a successful transition, one of the critical pieces is giving voice to both spoken and unspoken concerns of those involved. For example, for an owner or founder, it is important to articulate his/her objectives in transitioning the business, plans for the next phase of life, and willingness to hand over the reins. The spouse of the owner also has concerns that need to be surfaced and addressed, which may range from a concern for financial security in the golden years to peace between the next generation to how the couple will spend their time in retirement. The rising generation consists of both those working in the business and those who have no daily interactions with the business (which in and of itself can be a source of contention) and has its own concerns that need to be addressed. There may also be blended families, or an unwillingness of one family member to take direction from another, or arguments over voting and non-voting shares, or other issues under the surface. The transition must also consider the concerns of key non-family employees in the business.

In order to navigate the pitfalls and help address the concerns of the many stakeholders, we believe it is imperative to have an independent third party family business advisor to help guide the transition journey. The team of subject matter experts that will help structure and execute the transition may consist of: a corporate lawyer who recognizes the client is the family and not one individual; a CPA who must provide the accurate numbers for current financials and future projections and tax implications for all family members; a Certified Valuation Analyst who will work with the CPA to determine the accurate value of the business; and an estate planning attorney who will make certain that senior generation’s plans are adequate and that the next generation’s estates are in position to accept the ownership.

A family business advisor is the constant thread throughout the process to help navigate the pitfalls, keep the expert advisors focused on the goals of the family, and help the family address the concerns of the various stakeholders.  Don’t do this alone.  Invite a family business advisor to help you navigate the journey.

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