Family business transition: What to consider

A business represents more than just a financial asset – it’s an opportunity to provide for your family and build a legacy. But turning that legacy into something lasting takes more than hard work and good intentions. It requires planning. And yet, many business owners delay those conversations.

Only 34% of family-owned businesses in the U.S. have a robust, documented and communicated success plan in place, according to a survey conducted by PwC¹.

Additionally, just 40% of family businesses made it to the second generation – and only 13% lasted through the third². The reality: the more planning you do, the more options you’ll have. Without it, you may be left with choices that don’t reflect your goals – or your family’s.

Unfortunately, many family businesses fail or are sold before the next generation can take over. Having a careful, detailed business succession strategy can make all the difference. It starts with carving out time – a rare commodity for any business owner – to create a plan that works for you.

Don’t miss: Preparing for a family business succession conversation for best practices to have a productive discussion about the future of your business.

Consider your goals

After working with business owners for more than 30 years, I’ve found that the best place to begin is with the end in mind. What’s the ideal outcome you’re hoping for?

Do you want to stay involved in the business? Are your preferred successors ready and capable of leading? Is keeping the business in the family the right move – or just a personal wish?

Understanding the why helps guide the rest of the planning process. It also helps clarify how much of the business’ value you want to extract for your next chapter, and how the transition should unfold.

What are your family’s goals?

Family dynamics can be complicated. Some children may work in the business; others may not. Extended family members may have ties to the company. In that regard, how do you ensure fair compensation and avoid conflict?

Today, “family” can mean more than just parents and children. It’s important to define who’s included in your planning conversations – and to start those conversations early. Clear communication can help prevent misunderstandings and preserve relationships.

Finding the right successor

Whether it’s your child, a long-time employee or someone from outside the company, identifying and preparing a successor is key. Ideally, leadership transition should be gradual.

If possible, involve a trusted senior employee to mentor the successor. They can offer valuable insights and help bridge the gap between generations. It may also help if the successor gains experience elsewhere or starts in a junior role within the company to build credibility with colleagues. Many successful business transitions occur when the next generation gains experience at a competing organization or within a complementary industry.

And if client and vendor relationships are critical to your business, make sure your successor has time to build their own connections with those key contacts.

Structuring the ownership transfer

There are several ways to transfer ownership—through a sale, a gift or a combination of both.

In a family sale, the buyer may use a loan – either third-party or seller-financed – and repay it using business income. If you’re gifting the business, you can do so during your lifetime or through your estate. Each option has different tax implications. A sale might be structured in installments to spread out capital gains taxes. Gifting during your lifetime could allow you to retain control while removing the business from your estate, potentially reducing estate and income taxes.

There are also charitable strategies that can align with your personal, family and philanthropic goals.

Did you know you can take your philanthropic efforts to the next level with the right strategy? Get our insights and find the best approach for your situation.

Planning for compensation

Your own financial future is a key part of business succession planning. How much liquidity will you need? What does your next chapter look like?

You’ll also want to think about your employees. Transitions can be unsettling, and long-term staff may consider leaving. That’s why it’s worth exploring retention strategies – like employment contracts, deferred compensation or bonus incentives – to help ensure a smooth handoff.

Often, the success of a succession plan hinges on the loyalty and support of long-time employees.

Start planning today

The businesses that beat the odds are usually the ones that start planning early. Even small steps can make a big difference. The sooner you begin, the more options you’ll have—and the better chance you’ll have of making a successful transition.

Whether you’re thinking about selling, gifting, or something in between, your plan starts with your vision. Contact your Huntington team or find a location near you – we’re here to help you explore your options that align with your goals and support your family’s future.