Are you getting ready to give your kids the family business? Are you unsure of what to expect and plan for?
In a recent episode of our “Wealth Matters” radio show, our founding partners Adam Gaslowitz and Craig Frankel met virtually with two special guests from Wilmington Trust: Southeast Regional President Garrett Alton, ChFC, CLU, CEPA and Managing Director and Senior Wealth Advisor of the Atlanta Region Chip Kelleher. During this broadcast, they discussed how to plan, prioritize, and avoid potential pitfalls when selling a family business.
Here are some highlights from their conversation regarding what to consider before passing the family business onto the next generation.
What Are The Most Common Reasons People Sell A Family Business?
- Some adult children have seen mom and dad provide a great lifestyle for their families, but they want to do something totally different. Without a clear transition to the next generation, it’s sometimes in the best interest of the business to transfer ownership to someone outside of the family.
- Sometimes the second or third generation realizes that they would rather start their own business rather than run the business their parents/grandparents started. They end up selling the family business to someone who they trust to continue its growth while they venture out to become an entrepreneur.
What Should You Consider Before Transitioning Ownership Of The Family Business To The Next Generation?
“In our experience, we see that most family business owners do everything they can to keep the business within the family,” Adam said. “What should these business owners consider before they make that decision to pass it onto their children?”
Chip noted that there are a few things they should keep in mind:
- Is the business in a healthy state to pass onto the next generation, or is it a fixer-upper? Handing the business off when it’s not doing too well often overwhelms the new, less-experienced owners and can lead to a quick destruction.
- Is this what the kids want to do? They might feel a responsibility to keep up the family name, but is it really where their passion lies?
- Are there multiple people in the next generation who might fight over ownership? This can cause all kinds of family business disputes down the road.
How Far In Advance Should Parents Talk To Their Kids About These Matters?
Craig noted that one common issue he sees is that family business owners wait for too long to bring up discussions regarding future ownership and money with their children. He then asked Garrett what the recommended timeline is for bringing up such conversations with the next generation.
“The right time is right now – you need to get started as soon as you possibly can, especially if you’re going to transfer ownership to your kids,” Garrett said. “These conversations should be happening years, if not decades, before you plan to transfer ownership. They need to be working in the business, understanding the business, building credibility with the employees, customers, and suppliers as a known operator of the business and not just as a child of the founder. That’s a common mistake family businesses make – their kids not building that credibility with people before stepping into ownership.”
Garrett also added that there needs to be a clear vision in place of where the business is going to go. “Especially in today’s world, we’re seeing more of this second generation wanting to step away from the successful business their parents created in pursuit of what they consider to be more altruistic careers. The biggest challenge becomes finding a family member who is both passionate about the business and competent enough to run it well.”
Adam, Craig, Garrett, and Chip continued to discuss in-depth the planning, prioritizing, and potential pitfalls of selling and transitioning family businesses. You can listen to their full discussion by streaming their “Wealth Matters” episode here.
Are you considering filing a dispute over the ownership of your family business? Our firm has more than three decades of experience in resolving these disputes across the Southeast.
Contact our firm today for a free consultation.
Gaslowitz Frankel LLC is the Southeast’s premier fiduciary litigation law firm. Our legal team specializes in all aspects of fiduciary disputes representing individuals, executors, trustees, investors, shareholders, and corporate fiduciaries in complex fiduciary disputes involving wills, estates, trusts, guardianships, and businesses.
