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Keeping the Business in the Family

DallasThe fate of a family business can be tricky when the owner is no longer able to remain at the helm. Is there an obvious successor? Is there a succession plan in place? Encouraging your clients to think about succession planning for their businesses is difficult; none of us want to think about the day we can no longer work. However, when the business is a closely held family business, the discussion as to whether to leave the business in the family is often more emotional. After all, we’re talking about a different kind of relationship than we have with our staffs or colleagues.

The first thought might be to leave it to someone in the family, but that, in itself, can be a large undertaking. Putting aside the reality that many siblings don’t get along, issues of control, love, money, equality and taxes can inevitably surface. On the other hand, leaving the business in limbo and/or in the hands of a stranger can bring up even more concerns. 

If your client decides to keep the business in the family, make sure he or she is aware that this is not the same thing as leaving a lump sum of money; what the owner is leaving is the entire operation. Questions related to whether the new owner(s) have the know-how to run the business often come about and are not so simple to answer.

Here are 5 ways to ensure a smooth transition:

  1. Create a Development Plan. I call this Succession Planning 101. No owner can afford to operate a business successfully without leaving behind a development plan. This plan must lay out how the potential successor will gain the technical expertise and skills required to take control and run the business. If the luxury of time is on the owner’s side, then one way to achieve this is through an ongoing assessment of the successor’s performance during the transition phase. The AICPA’s Private Companies Practice Section Succession Planning Resource Center contains valuable tools to help you put a plan in place.
  2. Teach Them. Go one step further and teach potential successors every part of the business. There’s nothing like learning the ropes from the owner.
  3. Get a Mentor. Let’s face the facts: personality conflicts sometimes make it very hard for a parent and child/sibling to work with each other. A mentor can help smooth this relationship and get the potential successor on track to taking on such a large responsibility.
  4. Create a Group of Advisers or Directors. It can be a good idea to bring on a team of like-minded people to help select and train a successor. As the owner, you must set certain rules for hiring family members. For example, develop qualifications for positions, and make sure they meet them, even if they are a family member.
  5. Explain the Tax Implications. Tax laws can trip up even the best-intentioned owners. Make sure the tax consequences of various possible succession plans are well explained and understood by the business owner, the owner’s family and the anticipated successors.

Your clients also must face another very common detail associated with succession planning: their designees, children or otherwise, may not want to take over the family business. The best advice I can give is to encourage your clients to have frank conversations with their family as to whom they want to take over the business and whether the end goal is viable. Based on these discussions, your clients should have a clear picture of what to do, either keep the business in the family or develop a different kind of succession plan.


Additional Information

AICPA PFP/PFS members have access to the comprehensive, four-volume CPA’s Guide to Financial and Estate Planning, which is updated annually and provides guidance to CPAs advising clients in tax, estate, retirement, investment and risk management matters, including succession planning for closely-held businesses. Non-members can download free excerpts of the guide.

Steven G. Siegel, JD, LLM, Siegel Group. Steve specializes in tax consulting, estate planning and advising family business owners and entrepreneurs. He has lectured extensively throughout the United States on tax, business and estate planning topics. Steve is the author of numerous tax and estate planning publications, including The CPA’s Guide to Financial and Estate Planning. He is an adjunct professor of law in the Graduate Tax Program of the University of Alabama Law School, and has served as an adjunct professor of law at Seton Hall and Rutgers University law schools.

Dallas image courtesy of Seriable



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