I believe one of the most understood transition /exit planning areas for business owners is when the goal is to move it to children, or other close family members. Clients for whatever reason often think moving their business to a child or multiple heirs is just about creating an agreement, maybe including a trust, figure out the best tax strategy, and that’s it. Simple. Maybe once in a while it is simple but for the most part its the opposite, no matter the size of the value of the business. It’s not just business.
To do it right to help insure that the next generation has the best chance of a successful future business and family “harmony”, requires the business owner, family and their advisors to spend the time looking at this future goal many unique viewpoints.
Here are just a few questions more specific to a family transition /succession. It gets complicated, and emotional very quickly.
- What are the personal goals and objectives for the business succession?
- Do you wish to preserve family harmony? How important is that? What issues do you anticipate?
- Should children in the business and not in the business be “equalized”?
- Should children not in the business be given interests in the business?
- Is the business ready to be transitioned to the next generation? Is/are the “new owner or owners, ready?
- What if the business itself fails due to no fault of the child in the business? If you are relying on payments from your heirs, this could be a BIG problem.
- What if something happens to the child/successor?
- Do the inheritors really have the desire to grow and manage this business.
- What family dynamics, divorce, or other potential personal situations should be “risk mitigated”.
The fact is it is a very delicate process when the buyer/donor, is related to the buyers/inheritors.
To my mind the best way to approach this effort is with a collaborative team of pros, who all equally share in the input, and direction of the final plan. Everyone needs to have equal status in providing solutions, observations and recommendations.
One more VERY important point: Be aware clients current trusted advisors may also think this is not overly complex and or may not want to not rock the boat and will go along with the idea it’s simple.