Keeping the Business in the Family? Know the Benefits and Challenges of Family Succession.

Whether the keys were once passed to you or you forged your own, the transition of ownership from one generation to the next is a plan that crosses the mind of most family business owners. With family businesses, although succession planning can be especially complicated because of the relationships and emotions involved, it is imperative.

Let’s take a look at the benefits and challenges you’ll experience with your family goals, income, time of transition, and tax incentives when transferring your business to the next generation.

The Benefits

Your Family Goals

One of the most rewarding benefits of operating a successful business is being able to take care of your future generations while adhering to your values and culture. Passing the torch of a lucrative, well-run business can be one of life’s more gratifying experiences.

Continuance of Income

With proper planning, you can reasonably determine the expected value you may expect from transitioning out of your business.  Whether your goal is to phase yourself out of daily operations or to maintain some involvement in day-to-day decision-making, a solid plan will help you align your short and long-term financial expectations with your desired time commitment.

Time of Transition

You may be ready to retire soon but are not prepared to leave the business just yet. In a family succession plan, you can determine your post-ownership goals and objectives and create a transition that works best for you and your successor. Whether it takes five or 10 years, this timeline gives you the chance to prepare yourself for your next adventures – while still developing leadership and collecting an income.

Tax Planning

A family transfer of ownership can allow you to take advantage of tax benefits, including capital gains taxes and gift and estate taxes. Your tax advisor can help determine how to best leverage tax techniques and strategies for minimal impact and maximum deductions.

The Challenges

Family Goals

You ran your business your way. If your successor’s approach to operations doesn’t align with yours, emotions may run high. It’s best to put intentions and expectations on the table before moving forward. By being direct and transparent, relationships may be saved and the transition may be easier for all parties.

Continuance of Income

Transitioning to a successor who is incapable of running the business properly will threaten your financial security – and the future sustainability of your business.

Time of Transition

It takes time to train and prepare your successor for leadership. If you want a quick exit, know that a family transition will likely take several years longer than a third-party sale.

Tax Planning

You don’t want to be left with an unexpected tax bill after the sale of your business. Work with a trusted advisory team, including a CPA and an experienced estate planning attorney, to minimize your tax liabilities and consequences.

Like any sale, transitioning your business to a family successor comes with benefits and challenges – and there is no one-size-fits-all solution. Work with your advisors to determine the approach that best meets your specific business and future needs.