4 Issues to Consider when Transitioning Your Business to a Family Member

Theresa Marx
May 07, 2019

A challenge for any business owner is knowing when and how to transition leadership. If you run a family business, the decision can be even more complex as family harmony and relationships are often at stake.

This is the first blog in a three-part series that focuses on transitioning your business.

If you have a strong desire to keep your business within your family, as many business owners do, the following considerations can help you prepare for a successful transition.

  1. Your Readiness

    Determine whether you are personally and financially ready to transition the business to the next generation: 

    • Will you be able to retire when you want?
    • What means of financial support do your children have?
    • How comfortable are you with giving up control, and do you have a capable successor?

    TAKEAWAY: Giving up ownership and control of your business is both a financial and an emotional decision.

  2. Your Successors’ Readiness

    Determine whether the next generation is ready to sustain and grow the business when you’re not at the helm:

    • Which of your children are competent to run the business, and are they willing?
    • Are your children prepared to invest the time and capital needed to grow the business?
    • Will you treat your children equitably or fairly? (There’s a big difference.)

    TAKEAWAY: The next generation must be willing/able to take over the business before they assume control.

  3. Your Family’s Harmony

    Find a way to maintain family harmony while determining the best succession plan for your business by considering:

    • Can you meet the demands of the marketplace while preserving harmony?
    • Do any of your family members oppose your decision?
    • Are you willing to have difficult discussions with your family about succession planning, and do you need to engage a third party to facilitate these conversations?

    TAKEAWAY: Involving your family members in the decision-making process may be critical for the long-term success of the business.

  4. Your Financial Planning Options

    Determine the value of your business and how to structure the transfer to the next generation most efficiently.

    • Have you obtained a business valuation and a valuation of your non-business assets?
    • Do you have a team of advisors that can help you identify the best transfer technique?
    • Can life insurance be used to facilitate the transition?

    TAKEAWAY: There’s no single “right” way to transition a business to the next generation. Consider all options and engage trusted advisors to determine the best approach.

While it is a major, life-changing event, if done well, passing on a business has the potential to allow you to realize your business, family legacy and philanthropic goals after years of hard work. To learn more, read our full white paper, The Privately Held Business.

 

Theresa Marx is a senior wealth strategist for CIBC Private Wealth Management in Chicago, with 15 years of industry experience. In this role, she is responsible for developing integrated wealth management solutions and providing comprehensive estate and financial planning services to high net worth clients.