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The Three Important Objectives for a Successful Private Company Ownership Transition

February 26, 2021 4 Min Read Transfer & Exit, Transition/Exit Planning
Mario O. Vicari, CPA
Mario O. Vicari, CPA Director, Family-Owned Businesses Group Co-Leader, ESOP Group Leader

Why preparing your senior management team for a transition is so important

Private and family ownership transitions are one of the most complex transactions that the people who go through them will ever encounter. Not only do they involve a significant financial transaction, but they are fraught with other potential issues like the strength of the successors and a high degree of emotions for all parties involved.

While the mechanics of completing these transactions are complicated, we approach every case with the goal of representing and addressing the needs of all parties involved, including the exiting owners, the next generation owners, and the company. Our experience tells us that a transition won’t achieve an optimal outcome when only one of these parties is involved; in order to be successful, all three parties must be engaged in the process .

Each party has different needs and interests that must be considered throughout the transition process.

Exiting Owners

It’s important that the transition is fair to the exiting owners and that it addresses their needs. These owners are undergoing significant career and life changes. Their main concern is typically security for their next stage of life, and they want to ensure that their lifestyle needs will be met. This is especially important if they are giving up control of the company, whether via gift or sale. While this is an important issue, it must be addressed within reason since the company has limited resources and also needs to be considerate of the next generation owners.

Next Generation Owners

Fairness is very important to the rising generation, but their main goal for the transition is to have ample opportunity to create value for themselves and their families via their efforts in running the company. This generation must understand that they have an obligation to the exiting owners, either by buying their stock or via deferred compensation arrangements. However, they must also see the light at the end of the tunnel and feel like they will be rewarded for their efforts in running the business and building wealth for themselves. If the payout to the exiting owners is too high, this opportunity can be diminished and there will be little incentive for the rising generation of owners. Achieving a reasonable balance between the obligation to the exiting owners and the opportunity for the next generation is critical.

The Company

Private company transitions are unique because they are “inside transfers,” meaning that no new capital comes into the capital structure to fund a transaction. The capital to fund these activities typically comes from the company’s existing resources, including its liquid assets and future cash flows. From the company’s standpoint, it’s important to achieve the goals of the exiting owners and the next generation owners while ensuring the company is not put in harm’s way. If the structure of the transaction is not carefully considered, the company could end up in a liquidity squeeze with too much demand on its earnings or with too much leverage on its balance sheet.

Arguably, the company is the most important party in this equation because the exiting owners and the next generation owners will not get what they want if too much stress falls on the company and it fails. So it’s critical to achieve each party’s transition objectives while simultaneously keeping the company on sound footing.


Successfully completing a transition involves a careful balancing act that gives reasonable and fair consideration to all parties involved. To reach this balance, everyone must contribute and participate in the process with an eye toward working cooperatively to achieve each party’s objectives.

Mario Vicari, Kreischer MillerMario O. Vicari is a director with Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email.   


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Mario O. Vicari, CPA

Mario O. Vicari, CPA

Director, Family-Owned Businesses Group Co-Leader, ESOP Group Leader

Construction Specialist, Family-Owned Businesses Specialist, ESOPs Specialist, M&A/ Transaction Advisory Services Specialist, Transition/Exit Planning Specialist, Business Valuation Specialist, Owner Operated Private Companies Specialist, Private Equity-Backed Companies Specialist

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