Posted in Triplett & Carothers on February 1, 2025
If you run a family business, you may be trying to identify and develop potential leaders from within the family; a seamless transition from your leadership to the next generation’s can help preserve your legacy and vision while providing opportunities for your successor to grow professionally. Additionally, a thoughtful succession plan provides security and continuity for your employees, stakeholders and clients. But what if more than one person would like a chance at leadership?
As you plan, managing expectations is key to preventing disillusionment and hard feelings in the next generation of leadership. You also want to encourage and recognize collective achievements; this helps the transfer be about the company’s future rather than people’s feelings.
Here are some steps to take to support the process:
- Start early. If your children hear about the business while they are still young, they learn what it takes to run a company.
- Provide a balanced perspective on the rewards and sacrifices of managing the business.
- Teach values such as honesty, understanding, effort and responsibility as well as skills such as communication, organization, planning, team building, negotiation and compromise.
- Provide training and guidance on what is needed to run a company to increase everyone’s chances of success.
- Assess your children’s interest and skills as they mature. You want to determine who genuinely values your company’s future as well as who might not be capable of managing the business.
- Once you start succession planning, explore the concerns of all your family members. By answering questions and worries, however difficult the discussions may be, you will be on your way to preventing deep-seated resentments from developing later. You will also be giving your successor one less problem to manage.
- Make a written plan that clearly states your goals and the steps necessary to achieve them. Have this ready for your successor.
- Remind people that the final decision will be yours.
If there’s no obvious successor, you might try establishing a family executive council or board. This can work well if each child has a different area of expertise. If they can work well as a team, you might not have to choose one successor.
Other approaches
You may see that the best route is to sell the business — perhaps to one of the children. Unfortunately, few young adults will be able to purchase the company outright. You can try to reduce the sale price by doing any of the following:
- Separating the company’s property from its operations. You can rent the building to your children, reducing the purchase price and increasing the pool of potential buyers. Or you can sell the property to investors seeking passive income. Many investors are pleased to have rental real estate with tenants in place under contract.
- Spinning the equipment out of the company. If most of your company assets consist of equipment, form a separate company solely for equipment ownership and lease the equipment to your children. However, lease taxes are complicated, so you will want to consult an accountant.
Instead of selling the company to your kids, you can gift it to them. The main downside is that you won’t get any money for your retirement. Depending on the size of your business, you may also be responsible for gift tax.
You could also pass the business on to your children in your will or in a trust. This allows you to maintain control of the company and gives your children a step-up basis to the fair market value at the date of your death. Your children are more likely to be diligent about the company if they’re risking their own money.
There are many ways to pass your business on to your children. No method is better than another, because your family is unique. It may be that a mix of strategies will be best. In any event, consult with a legal adviser and tax advisors and be sure to consider your own retirement finances.
Reach out to Roz Carothers and her team at Triplett & Carothers to learn more.
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