Transferring Ownership of a Family Business

Transferring Ownership of a Family Business

Few business tasks are more difficult that creating a successful family business but transferring ownership of a family business may be close. A recent article by Harvest Capital’s James A. Fitts and Marshall Rowe in “Family Business” magazine provides some good advice on family business succession planning.

Fitts and Rowe recommend that you begin planning the family business transfer years in advance. We all know the value of time to do research, think about options, seek advisors, and get all your company’s major players behind the transfer. Start by talking. Hold a family meeting to solicit everyone’s input and opinions. Doing so will help build trust and demonstrate your willingness to communicate. You may want to first tackle writing a family business mission statement, vision statement, and values. At this point in the process what’s most important is building agreement and finding ways to work well together.

Before you discuss and plan the business transfer put in writing the existing business ownership and governance structure. It’s difficult to get to where you want to go without first clearly defining exactly where you are today. You’ll also want to define how you want the ownership and governance to change in the future.  Take more time than you think you need on this step. The strength of your accuracy and vision at this stage will have a large impact on the success of the business transfer.

Once everyone agrees on these points the business owners can create their exit strategy and the managers can develop a strategic plan that outlines how the transition will be accomplished. Major steps in the process outlined by Fitts and Rowe are:

•    Retain the right advisors
If the family plans to sell the business you’ll want a corporate attorney and a CPA who have experience in mergers and acquisitions. This is the way to protect the family’s interest and to gather a wide range of ideas on how to best structure the deal. If the business is being passed to a new generation within the family Fitts and Rowe recommend retaining a trust and estate attorney. The attorney can recommend deal structures that meet the family’s objectives within the existing laws governing gift and estate taxes.

•    Prepare a personal financial plan for the departing owners
“A business transition changes the character of the family enterprise,” Fitts and Rowe say. “Once monetized, the business is essentially a financial management company whose inventory includes stocks, bonds, commodities and other investments that are often unfamiliar to an entrepreneur.” Make sure you have the right professionals to help manage those assets.

•    Prepare the business for the change
You’d be wise to have someone assigned to oversee business management during the transition. You don’t have to assign this role to the family business’s current CEO. Often it’s better to have the COO or another senior executive in charge of the transition period. But choose someone who has broad operational experience and authority to handle day to day operations. Do develop a business succession plan outlining how the current CEO’s responsibilities will change during and after the transition.

Remember that throughout this transition process you must communicate frequently and clearly with all parties.  Employees, customers, key vendors, and banks will all react much more positively if you keep them informed.

If your family business ownership transfer is a passing of the business from one generation to another you’ll want to balance the business needs with the family needs.  That can be challenging. But here are a few ideas on overcoming those challenges.

Don’t treat the business’s economic value and the business’s management as one and the same. In other words, divide the economic value among family members but place management and control in the most capable hands.  Everyone deserves a share of the business value. But management responsibility must go to those who can best maintain and improve the business.

Know that the way you choose to share the family business will have a major impact on family relationships for generations. Consider that structure carefully. Consider holding an opened-ended family discussion. The purpose is to give everyone a chance to provide their opinions and have their ideas considered. The purpose is not to formulate the final business succession plan.

Do devise the transition in such a way that the current group of owners will support the future management team. Non-family managers can be especially important. You want them to support the plan and have confidence in the management succession plan.

There’s more in the original article that appears in the July/August 2012 issue of Family Business. Do let me know if you’d like more details. You can also visit the business website of the article’s authors at Of course, the Internet is full of resources on this topic. Two are the Family Business Institute’s Succession Planning and AGProfessionals Five Tips for Family Business Succession Planning.

As always, feel free to drop me a quick comment or question. Call 203.453.1017 or e-mail