How To Pass On Your Family Business

Media / Blog

How To Pass On Your Family Business


How Much Money Did My S Corporation Make

August 18, 2015

You have spent 15, 20, or even 30 years building up a business that you plan to pass on to your family.   Now, most of your time is spent laying out your future travel schedule, perfecting your golf game, or thinking about lazy Sunday afternoons hanging out having fun.   You are finding it hard to get away from the business because it still requires your attention, and now you are wondering whether or not your son or daughter are even interested in taking over this family business that runs like a machine.   How will you be able to pass on your family business that you have worked so hard for your entire life?

Unfortunately, most business owners are so frantic running their business to create top line revenue that they don’t spend the time to lay out their own succession plan.   If you pass the business on to only one child, will there be some sort of sibling rivalry?   If you die, what will happen to the business today?  If your children don’t take it over, have you identified a quality successor who can run and maintain the business?  Here are a few thoughts and options to consider when passing on your family business.

  • Sell The Business Outright To A Third Party
    If you haven’t done any sort of formal business valuation, it is worth it to get an idea about what your business is actually worth at this time.   Just as is the case with real estate, many business owners become sentimentally attached to their businesses.   Thus, they often feel it is worth more than it actually may be in the marketplace.  Depending on your business, you may be required to stay on with the new company anywhere from six months to several years depending on the type of business and the overall transition.   You may be the kind of business owners that just wants the cash to walk away, or you may look for a third party that carries the same values you have built in your organization.
  • Grooming A Family Member Or Internal Successor
    Finding a successor in your business won’t be as easy as you may initially think.   After running your business as long as you have, your employees and customers have become accustomed to a certain way of doing business.  They have become used to your style of running the business.  It will typically take three to five years to really groom in a new operator for your business.   Remember, you have built it from the ground up so you naturally know all the skeletons and the ‘why’ certain parts of your business run the way that they do.   If you do select a family member, treat them as you would any independent successor you would have brought into the business.
  • Let The Business Run Out Of Air
    One analysis you will have to do when you sell your business is to determine whether or not the cash (net of taxes) from the sale of the business will be able to replace the income (and fringe benefits) you currently earn from the business.   If you have built a lifestyle business and there isn’t significant intrinsic value in the business, you might just work the business down until it doesn’t run anymore.   This means you wouldn’t be putting in the 60 hour work weeks, and just let the business continue to bring in income until it slowly erodes away.   This isn’t the easiest to handle from an emotional perspective, but might make the most sense financially.

There are a slew of other options to look into including employee stock ownership plans, but if you plan to pass the family business on down the road it is important to get all of your options out on the table to ensure you make the right decision for you and your family.

Written by: Ted Jenkin
Request a FREE consultation:


Why Are We Always Hungry At The Airport

Sign Up

Sign up for our exclusive Sunday Paper with a weekly market commentary, insightful personal finance blogs, and life changing education guides.

Email sign up

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

This site is published for residents of the United States only. Registered Representatives of Kestra IS and Investment Advisor Representatives of Kestra AS may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed. Not all products and services referenced on this site are available in every state and through every representative or advisor listed. For additional information, please contact Kestra IS Compliance Department at 844-553-7872.

PLEASE NOTE: The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. Kestra IS and Kestra AS makes no representation as to the completeness or accuracy of information provided at these web sites. Nor is Kestra IS and Kestra AS liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.