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Are You Sure Your Kids Will Want the Family Business?

You're a parent who owns a family business. Admit it. If you started the company, didn't you entertain thoughts early on of one or more of your children eventually coming into the business? If your parent or grandparent founded the company, haven't you thought of the business as a family legacy that you'd like to leave to your children? 

The decision of whether to bring your children into the family business is not yours alone. Your sons and daughters must want to make the move and do all that's necessary to prepare themselves for it. While this should be obvious, many parents are reluctant to truly engage their children in this decision-making process.

Parents in a family business often don't ask the children whether they would want to take over the business someday. As a result, the parents hold on to the business or hold back on critical business decisions in the hope—or with the expectation—that the children will take over these responsibilities when they retire.

Succession planning: A process, not an event

For whatever reason, parents are often reluctant to ask their children about succeeding them in the business. It's important that the decision of whether to eventually pass on leadership and ownership to the next generation be viewed not as an event, but as a process.

The process is not just about the question finally being asked. Rather, it's more about beginning the process when the children are young and helping them understand the business, its opportunities and its heritage. If and when the children begin to show an interest in participating, the process continues with the development of a path toward education and outside employment to prepare them.

And if the children enter the business, they'll need to develop a career path to help them clearly understand what they need to achieve and what's expected of them if they aim to eventually take the reins. Consider working with an experienced coach to help bring focus to the process.

Don't rush the process

Processes take time. One like succession planning is likely to unfold over a number of years and should not be rushed. However, there are no guarantees that things will work out as planned.

The children might change their minds. They might prove not to be the ones best positioned to next lead the business. Perhaps the value of the business will grow to the point where the owners feel a strong need to diversify their assets.

The owners might not be ready to sell because they are still holding out hope that their children will succeed them. Yet they might have too much of their estate tied up in the business to just stand pat. Whatever happens, there needs to be planning, and at the same time, flexibility.

This is where a business recap, as discussed in "Business Recaps Let You Have Your Cake and Eat It Too," can be valuable in helping provide that flexibility. If you don't know whether the next generation's development plan will work out in the long run—or if the decision to come in is still a long way off—a recap can help the business owner realize a significant portion of the company's value while still retaining ownership. A recap can let you preserve your options and wealth and can serve as a valuable bridge when you don't yet have your questions answered. 

Questions about your children's role in the business?
Please contact your Blackman Kallick representative at 312-207-1040.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.