Back to Insights

6 Steps to a Successful Family Business Transfer

Steven E. Staugaitis, CPA, CVA
Steven E. Staugaitis, CPA, CVA Director, Audit & Accounting, Small Business Advisory Services Group Leader, Family-Owned Businesses Group Co-Leader

6 steps to a successful family business transfer

Structuring an ownership transfer for a family business is often complex, depending on the relationship dynamics of the family and the number of stakeholders involved. Through our work with family businesses to help design the ownership transfer, we have identified six keys to make the transition more successful. These steps are not necessarily linear, but do need to be addressed during the family transfer process.

Align Family Goals

One key to a successful transfer is to complete upfront work that ensures the senior generation as well as the next generation is prepared for the transition. This involves understanding each generation’s goals. It may be necessary to educate the succeeding generation about what their responsibilities as a new owner will entail. The senior generation who is exiting the family business will often need to reflect on what their new role will look like and their level of future participation in the business.

Evaluate the Senior Generation’s Liquidity Needs

An evaluation of the senior generation’s future income needs should be conducted prior to structuring the transition. This will uncover the difference between what the exiting generation needs versus what they may want as part of the deal. With the multitude of ways to structure a transaction, it is important to understand which options are on the table, and which may need to be ruled out.

Analyze the Company’s Finances

The business’s historical financial performance provides insight into what the company can handle in terms of a transaction as well as a range of values for the parties to consider. In almost every situation, the business is the vehicle to fund the transaction. The incoming generation seldom has the personal liquidity or borrowing capacity to cut a check for the value of the business. At this point in the process, it is vital to balance the senior generation’s liquidity needs and the company’s ability to fund a transaction.

Evaluate Transfer Methods

This is the step where the rubber meets the road. Here we evaluate which path(s) to pursue in the ownership transition. This can include gifting, sale of ownership with a seller-held note, establishing a deferred compensation plan, or borrowing from outside parties for a cash sale. The senior generation’s timing and liquidity needs will dictate which avenues to pursue.

Evaluate and Analyze the Tax Structure

The transfer methods will dictate the tax consequences. The potential tax impact to the senior generation, the next generation, and the company all need to be evaluated.  In a family transfer, the goal is often to minimize the tax consequences for the family members as a whole.

Develop a Buy-Sell Agreement

In situations where the business will transfer to more than one owner, developing a buy-sell agreement is of great importance. The shareholder agreement should reflect the intentions of the new shareholders and dictate how they will handle their future ownership transactions. This step is critical to making sure the next generation is in the best position to succeed.

Structuring a family business transfer takes effort and time. Handling the transition properly allows for the greatest chance for success and continued legacy of your family business.

Steven E. Staugaitis can be reached at Email or 215.441.4600.

Subscribe to Kreischer Miller's email newsletter

You may also like:

Contact the Author

Steven E. Staugaitis, CPA, CVA

Steven E. Staugaitis, CPA, CVA

Director, Audit & Accounting, Small Business Advisory Services Group Leader, Family-Owned Businesses Group Co-Leader

Family-Owned Businesses Specialist, Small Business Advisory Specialist, Business Valuation Specialist, Transition/Exit Planning Specialist

Contact Us

We invite you to connect with us to discuss your needs and learn more about the Kreischer Miller difference.
Contact Us
You are using an unsupported version of Internet Explorer. To ensure security, performance, and full functionality, please upgrade to an up-to-date browser.