New Assignment Form
Contact Us
Stay up to date with our latest insights and resources
Learn More
Stay up to date with our latest insights and resources
Learn More
Stay up to date with our latest insights and resources
Learn More
Stay up to date with our latest insights and resources
Learn More
  • There are no suggestions because the search field is empty.

Considerations to Make When Preparing Your Family Business for Transition

PreparingFamilyBusinessforTransition.jpgWhen it comes to family businesses, owners are generally more focused on building a legacy for their successors rather than spending the time necessary to plan for the transition. Hours of work are spent addressing the immediate needs of the business while planning for the transition is set aside for another time. This delay can create problems down the line when an owner decides that it is time for him or her to transition from the business. Paying close attention to the following considerations will help you ensure that your family business is ready for that transition phase and new leadership.

Start Early

With anything in life, you can never start planning for the future of your business too early. It is recommended that business owners start the planning process at least several years before the earliest feasible point the transition could occur. This will help you analyze your business and exit options well in advance so that you can make the best decision for both you and your successors. Planning early also ensures that any changes in your economic, industry, or family status do not significantly impact whether or not your exiting objectives are met.

Tax Planning Strategies

Another essential component of preparing your family business for transition is considering estate and tax planning strategies. With the many options available to you, taking the time to analyze each means that you’ll be able to find the best solution for a tax-efficient transition. Some strategies include:

  • Gifts / trusts for family members
  • Grantor trusts
  • Grantor-retained annuity trusts

Identifying Your Successor

There are a variety of ways in which an owner can exit their business - passing it to a family member, business partner or key employee, or selling the business entirely. Regardless of the route you deem most appropriate for your business, each comes with its own set of difficulties.

Keeping It in the Family

Picking a family member to succeed you can be an incredibly emotional and trying time. When handled rashly, family strife can occur. Chances are your family members all have their own unique skills sets and some might not even want to be a part of the next generation of leadership. Take time to assess each of their strengths and weaknesses and then clearly define what their roles and responsibilities will be in the organization after it is fully transitioned.

Transitioning to an Employee / Partner

Your employees and business partners have been vital to the success of your business and chances are, they will remain vital after your exit as the owner. It is important to consider whether or not you’d want to have any of these key employees be part of the leadership team once you move on, especially since they are already ingrained with most, if not all of, the nuances of your business. Employee stock ownership plans (ESOPs) should also be considered regardless of who the next leader of your business is.

Preparing for Transaction

It is important for owners to realize that their company may need some time to become sale-ready. Positioning the company for sale can take at least two years and should be part of your overall transition plan if you are choosing this course of action. Financial records need to be organized and sound as many buyers will request CPA prepared financial statements dating back several years during the decision making process. Some companies also choose to bring on other professionals during this time with the goal of maximizing their business for sale. These professionals have expertise identifying improvements and recommending changes that will allow you to maximize the outcome of the transaction.

Another critical aspect of successful transition planning is having contingency plans set in place in the case of any unforeseen occurrences. Flexible and adaptive transition plans will help you navigate any positive or negative situations you and your organization may face.

What other critical factors do you consider while creating a succession plan for your family business? Share your thoughts in the comments.

New Call-to-action


Lloyd W.W. Bell III is Director of the Cor­porate Finance Group at Meaden & Moore. He has over 20 years of experience in financial management.

Search the Blog

  • There are no suggestions because the search field is empty.