Be Prepared for These Complexities in Your Family Business Transfer

If you're a business owner planning your exit strategy, it's possible that you have considered a family business transfer. Family business transfers can be a smart and strategic way to pass the reins of your business, but, like any family affair, can also come with a host of unforeseen complexities. Here, we explore some of them.

Financial Security

First and foremost, your financial security is of utmost importance. You've worked your whole life to build up a successful and profitable business, and it's critical that by the end of the transfer you're able to rest assured knowing that you will receive the amount of income you need to live out your retirement comfortably. Depending on your particular circumstances and financial needs, that might mean maintaining some degree of involvement in the family business until you have enough money to exit. It's also worth noting that many family transfers are financed over a longer period than a typical third-party sale might be, usually for liquidity and cash flow reasons. Because there are so many moving parts to consider, it's critical to start planning early on to leverage opportunities and minimize liabilities.

The Right Passion, Vision, and Experience

Arguably the most important aspect of selecting your successor is ensuring that they share both your passion for the business and your vision for its future, in addition to having the proper experience and training to run things. This is one of the reasons that it's especially important to plan ahead. If you start thinking about who you will choose as your successor well in advance, you have plenty of time to train them, develop their skills, and show them the ropes firsthand.

It's also important to point out that in some situations there won't be a good successor within your family. Ultimately, you want your business to survive long-term to provide value to your family for generations to come. Don't force a familial successor if the fit isn't right. It will only hurt in the long-term.

Keep Things Fair

On the other hand, having too many successors to choose from can also present a difficult situation—i.e., if you have multiple children. Owning a business is hard enough as it is but co-owning a business with siblings has the potential to create its own set of complications. Most family business owners are sole owners themselves, and it's usually wise to pass the baton to a single successor as well. But if you have more than one child, it can be a daunting task to pick and choose.

For those children who are not selected as successors, most family business owners will seek to divide up their other assets accordingly to keep things balanced. While there is no exact formula for how to fairly support children who are inactive in the family business, there are specific considerations to keep in mind. A great place to start is with a comprehensive review of your estate plan. Look at your trusts, wills, business assets, and non-business assets, and then think about how you can fairly divide them amongst your heirs.

Seek Professional Help

Succession can be complex on its own, but family dynamics can cloud the judgement of even the savviest business owners. That's why it's wise to seek professional help—someone you can bounce ideas and questions off to ensure that you stay on track. As your financial advisor, my goal is and always has been to make you feel like you are "coming home." What exactly do I mean by that? I mean that I want you to feel safe, cared for, and confident that all is in order, and that includes your business. If you're a business owner that is considering a family business transfer, don't wait until the last minute to get your ducks in a row. Please don't hesitate to reach out and start planning today.