Making Your Family Business Your Legacy

By Jason Thompson, CPA/ABV, ASA, CFE, CFF
Partner and Director of Valuation and Litigation Services

Like any successful entrepreneur, most business owners look upon their company as not just their livelihood, but as part of their identity. As they approach retirement, it’s a natural instinct to want to protect that legacy and pass it on to worthy successors. This desire can be complicated when the business in question is family-owned.

The thought of relinquishing control to the next generation of the family may seem reasonable when you’re looking far down the road. But when the day actually arrives, control is often the last “asset” owners are willing to give to someone else.

Sponsel CPA Group has extensive experience with assisting the successful transition of family-owned businesses. Many of these clients are first-generation owners, but we also have some that are in the fourth generation of ownership succession.

The statistics can be alarming: most family businesses do not survive through the third generation of owners. The initial generation of owners are often the most “transition” challenged, as they have no experience “passing the baton.” Subsequent generations tend to better understand the challenge of ownership transition because they have personally lived through that experience. They know what a successful transition looks like and what pitfalls to avoid along the way.

The challenge of successful family business ownership compounds when there are multiple generations and lines of family descendants.

A succession strategy must address numerous areas, including management transition, financial transactions related to ownership transfers, and the ultimate question: when will control actually transfer?

In some cases, companies are transferred via “gifting” shares of ownership from one generation to another. Right now is an excellent time to take advantage of the historically high limit of the Lifetime Gift Tax Exemption, currently at $11,700,000. Given the political turmoil in Washington, the future of this exemption amount is highly uncertain.

In addition to gifting, there are other strategies for transferring wealth while retaining control of the business. These options can be beneficial because value is transferred out of the owner’s estate, but he/she maintains control of the asset transferred — in this case, the family business.

If you are family-owned company and desire to perpetuate the enterprise, Sponsel CPA Group recommends the following steps:

  • Communicate your exact desires directly with the future generation of owners, often and openly.
  • Seek their feedback and reaction to your family succession plan for the business.
  • Start the process early — at least 10 years before the elder generation wants to retire.
  • Be open-minded about the direction the company may take after transition. The next generation could have more energy and inclination for implementing major changes to the business model.
  • Provide the future business operators the benefit of your experience, but allow them to make their own mistakes — so long as they’re not detrimental to the business.
  • Use professional advisors to assist in counseling sessions designed to discuss difficult issues and the financial aspects of the business, both in good times and economically challenging ones.
  • Develop a plan to address family members who are not involved in the business.
  • Actively engage in the process — before, during and after transition.

Often we encounter older business owners who do not have a succession plan in place because of a misguided desire to avoid family conflict. In fact, the opposite is true: dealing with the issue of transition while you are still among the living is more beneficial to familial harmony than leaving your heirs to speculate what you wanted after you are gone.

Unfortunately, we have seen many families permanently and tragically divided over the settlement of estate and business ownership issues. But this doesn’t have to be the case with your family.

Become proactive in working with your trusted advisor (CPA, attorney, etc.) to develop a succession plan. Conduct family meetings to explain and implement a plan that is best for your family-owned company’s situation. And take the necessary steps to ensure your business becomes your lasting legacy.

If we can be of any assistance in helping your business with succession issues, please call Jason Thompson in our Valuation and Litigation Services department at (317) 608-6694 or email