Running a business in today’s global economy is challenging due to rapidly evolving technology, changing consumer preferences, and economic uncertainties—which all require constant adaptation and innovation to remain competitive. When the company is closely held or family-owned, however, the complexities may increase tenfold. There are additional emotional and psychological elements to contend with, legacy concerns, and of course the ultimate objective of ensuring your succession will meet financial and business goals.
We often advise entrepreneurial clients through these transitions and find that every family is unique and every leadership team has distinct goals. The common threads that tie situations together are the need to think objectively and plan strategically while considering the personalities and dynamics involved.
To achieve the ideal outcome, the most important pieces we bring to the table are an objective and independent perspective, the ability to provide emotion-free mediation, and the right technical toolbox. For internal transactions, this goes well beyond financial planning to encompass a range of other aspects, including liquidity, tax structuring, asset protection, due diligence, and sustained business growth.
Parents become ambassadors of the company, often seeking to bring their children into leadership roles where they will flourish—all while facing the reality that they are giving up their “corporate baby” to their actual babies.
Letting go with peace of mind is no easy feat. When we work with clients, there are three central questions we explore:
How Do You Secure Retirement and Your Legacy?
In most cases, owners of small to midsized businesses rely on their exit as a primary source of retirement income, making savvy retirement strategies a critical concern. There are opportunities to design retirement plans and leverage various tools that are unique to owners.
In terms of legacy, when parents pass their business on to the next generation, the vision is for the company to thrive under new ownership. That can only happen with education and adequate preparation for their roles. It can take years to onboard, train, and elevate young family members to a position that allows them to take the reins.
What is Fair in the Family?
Fair is always up for interpretation and is likely a sensitive subject for any family. Determining an equitable path encompasses myriad factors, including individual values, spending habits, and the roles that different family members play within the business. Sibling rivalry can further complicate the picture, raising questions about the distribution of assets, responsibilities, and opportunities.
To navigate this aspect successfully, open and honest communication is essential. All family members need to be willing to candidly discuss their goals, interest in the business, and overarching concerns. Ideally, a skilled facilitator or advisor will mediate these discussions and foster transparency.
When Do You Start Thinking About the Transition?
It is never too early to think about exit strategy. In fact, we believe that business owners should begin with the end in mind, however difficult that may seem at the start of a venture.
In the context of family business, it is even more crucial to start thinking about the transition well in advance. The consequences of being caught unprepared are too dire. For example, the family business leader may experience an unexpected health crisis, and a rushed succession will increase friction among family members.
On the other hand, early planning allows families to maximize the benefits of the transition while minimizing the challenges. They can lay out a clear path, have time for individuals to express themselves and embrace their future roles, and further cement retirement expectations.
All stages of planning should involve a reliable and coordinated support team, including CPAs, legal experts (for both business and estate planning), and financial advisors.
Family-owned businesses are an intense, long-term endeavor. When it comes time to hand operations over to a new generation, there are difficult emotional issues around separation coupled with parents who are entering a different life stage. It can be an exciting time, but certainly there are conflicts and concerns.
The goal? To create a path that is lucrative enough for owners to sustain their lifestyle, thoughtful enough to consider interpersonal dynamics, and operationally sound enough to ensure the business and the family will thrive in the future.
If you have questions about your business transition, please contact Carmen Grinkis, PhD, CLTC, CLU®, CFP®, Wealth Advisor & Co-Managing Partner, AAF Wealth Management at 774.512.4061, firstname.lastname@example.org—or your AAFCPAs partner.
Carmen is a licensed investment adviser and a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional. She also has a PhD in Clinical Psychology and 15 years’ experience as a practicing psychologist. This perspective benefits clients because much of financial planning is about life planning.