Passing the Torch: How Wealth Advisors Ensure Family Business Success

Many family businesses start with the dream of establishing a lasting family legacy for future generations. If life unfolds as one hopes, the family and business mature, a successor emerges, and plans for the transfer of management and control are implemented. But life doesn’t always go according to plan. Key pieces of the puzzle may be missing which force the consideration of alternative plans that were never envisioned.

This is where Wealth Advisors can play a vital role for family businesses. Wealth Advisors provide valuable insights and strategies for succession planning, ensuring that your financial goals align with your long-term vision for the business.

There are several factors to consider:

• Availability of a successor. For many family businesses, the children are successor candidates. In some cases, none of the children emerge as qualified or interested in continuing the business, leaving business owners with little to no time to find the right person to bring in and prepare as a successor.
• Financial position of the owner. The financial circumstances of the owner may dictate that the business be sold in order to raise cash for retirement or other financial needs.
• Marketability of the company. Some businesses have little intrinsic value or are facing financial difficulties due to market conditions which reduce their value.

Any one or a combination of these factors will be the primary determinant for which option you will need to consider
 

Business Transfer Options

Make it a Family Affair

Keeping the business in the family is often the first choice for many business owners. If all the pieces are in place, it offers the best opportunity for the successful continuation of the family business. It takes a lot of planning that needs to begin while your children are relatively young. As part of a family business succession strategy, there needs to be a multi-stage development plan for the children who are candidates along with an objective way to assess their progress, their interest, their commitment and their competencies.

As the family and business mature, it's essential to collaborate with a trusted Wealth Advisor to create clear ownership transfer plans with defined objectives, roles, responsibilities, and a timetable to ensure a smooth transition. Without this, successor candidates may become discouraged. By leveraging the expert guidance of your Wealth Advisor, you can develop and implement these plans, addressing all financial and legal aspects. This helps maintain the commitment and motivation of successor candidates, aligning the strategy with your long-term vision for the business.

Going Outside the Family

It is not uncommon for a family-owned business to find an external successor. Business owners who want to see their business legacy continue must commence a search to identify a possible successor. The search may begin inside the business if there are key people or partners that have demonstrated their commitment and competencies for running the business.

If there aren’t any candidates inside the business, then the search must go outside. This is a much more difficult path and, unless you have a well-developed business network in your community, it is usually best traveled with a professional recruiter. This can take some time, as you will need to be as thorough in your search and selection as necessary to find a person with the skills and commitment you need. A Wealth Advisor can be instrumental in this process.

If you are able to identify a successor, you will need a detailed business plan that includes the succession strategy, timeline, terms of ownership transfer, a method for valuation, and a method of financing. A Wealth Advisor can help ensure that detailed benchmarks are established to evaluate the candidate's performance. They can also facilitate the creation of partnership agreements with buyout provisions if the successor is brought in as a partner. Throughout the entire process, Wealth Advisors offer critical legal and financial advice, ensuring that all aspects are thoroughly addressed and aligned with the long-term vision for the business. This comprehensive support helps maintain the business's legacy and ensures a smooth transition.
 

Prepare for Your Best Option

Even though you may be years away from having to navigate this process, the best thing you can do in the near term is plan and prepare. Businesses that have a long-term strategy in place and are managed in way that increases the value of the business will typically have more options available to them.

By working with a Wealth Advisor, you can navigate the complexities of succession planning and make informed decisions that support the continued success and legacy of your family business.