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Sustaining Multigenerational Business Success

Factors to consider before the change

By Stephanie Siders and Christopher Wolff

Successfully transitioning any business to new ownership is fraught with challenges. But family businesses that are poised to transition to the next generation face a distinct set of succession issues. 

Addressing those challenges is especially important because succession planning also means wealth-transfer planning for the family. It’s widely reported that with each successive generational transition of a family business, the likelihood of failure increases. Yet, a significant number do navigate the generational transition smoothly, remaining relevant in changing markets and creating even more wealth for the family. 

Why is it that some family businesses decline, but others thrive when the next generation takes the reins?  Part of the answer lies in how well the succession process is handled. Taking the time to plan is critical—and doing so early is wise because unforeseen circumstances may accelerate the succession timeline. 

Here are 10 questions the leaders of family-owned businesses should consider as they approach the succession process and plan for the company’s long-term future and preservation of family wealth:                 

1. What is your motivation for selling and, ultimately, exiting? What is your vision for the business’ future? Articulating this will help guide the business once you exit, and will inform your planning. Importantly, in retirement, what meaningful activities will you focus on outside the business? As you plan your exit, it’s important to adopt a mindset that you are retiring to something rather than retiring from something!

2. If you desire to keep the business under family control, which family member(s) is best equipped to step into the ownership role? If someone from the next generation has an interest in purchasing the company, does that person have the knowledge, skills, and experience to lead it into the future? Is that person already involved in the company? If not, what will it take to get that person involved and up to speed?

How will you handle family members who want to be involved but aren’t a good choice? Don’t put these decisions off. If you do, they may develop their own expectations, making it harder to have the discussion down the road. You also might be surprised to find that no one in the next generation is interested in leading the business. 

3. What is best for outside stakeholders? Is selling to a family member in the best interest of employees, customers, and others involved? If not, it may not be in the company's best interest, either.

4. How will the sale be structured? Every situation is different. Some next-generation buyers may need capital. If so, are you willing to consider seller financing to reduce the need for upfront capital? Would it be beneficial to bring in an outside investor who also brings industry expertise? How will the transaction be structured from a tax-planning standpoint? Attorneys, accountants, and other advisers should be consulted to determine what is optimal for all parties.

5. What are the insurance needs for the next-generation owner? If you don’t already have key-person life insurance coverage for the next-generation family members designated as your successors, make that a part of your transition plan. The coverage will help stabilize the business and provide a financial cushion if your successor dies unexpectedly. Does a buy-sell agreement need to be created and funded through insurance?

6. What is your timeline for exiting the business? Selling the business does not mean you will leave immediately. Most successful transitions require one or two years for the founder to fully transition out. Stay long enough to train your successor and create continuity as well as assure customers and suppliers—but not long enough to create conflict with your successor.

7. How will you transition business relationships? Over the years, you have developed relationships with clients and vendors. How will the transition be communicated to them? They may be skeptical about the transfer of authority to someone else. It is imperative to develop a process that alleviates any concerns they may have.

8. How will you clearly define roles and communicate them to the rest of the company’s employees? Be sure to communicate your plan and goals with all key employees of your business, especially family members who are involved in the company. Candid conversations are essential—you don’t want employees or other family members compromising the transition because they feel worried or left out. 

9. How will you leave an equitable legacy to your children who won’t be part of the next ownership team? Does transitioning the business require updating your estate plans and beneficiaries to equalize the benefits to other children? 

10. How does a sale affect your own financial plan? What are your financial needs in retirement? Can you satisfy them independent of the business’s ongoing success? Are you willing to leave money on the table to keep the business in the family? If so, and you essentially undervalue the business, the difference might be considered a gift and have tax consequences.

Failure to plan can lead to strained family relationships, an inexperienced family member taking control, and unhappy clients and employees. All of these create negative pressures on the business that can impact profitability and, ultimately, viability.


About the authors

Stephanie Siders, CFA, is a Managing Director with CC Capital Advisors, a lower middle market investment banking firm. Stephanie has more than 15 years of investment banking experience and is involved in leading and executing all phases of M&A and capital raising transaction processes for CC Capital Advisors’ clients across a broad range of industries. CC Capital Advisors, Inc.  Member FINRA, SIPC.

Chris Wolff, CFP, is Senior Vice President, Director of Financial Planning with Country Club Trust Co. Chris provides customized comprehensive financial planning and client-specific planning solutions. He has more than 17 years of experience in the financial planning and investment industry.

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Siders, S. and Wolff, C. (2022, October). Sustaining Multigenerational Business Success. Ingram's Magazine.