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The Best Starting Point in Family Business Transfers

Submitted by John Brown on Fri, 06/28/2019 - 8:00am
Two men arm wrestling on a wooden table with a small pile of money between them.

In our last post, we met Linda, a successful business owner looking to exit her business. Today, we’ll look at how Linda’s desire to transfer her business to her family could affect her planning, and how her Exit Planning Advisor recommended she approach issues in transferring to family.

After setting up a meeting with Morgan, Emmy’s trusted business valuation specialist, Emmy broached the subject of Linda’s desired Exit Path: a transfer to her two children.

“You said you wanted to transfer your ownership to your children,” Emmy continued. “Can you tell me about them?”

“I sure can,” Linda glowed. “I have two sons, Gene and Jimmy. Gene’s been working in company operations for 15 years. He’s good at following my directions, but I usually need to motivate him and keep him on track. I figure once he gets ownership, that fire will light itself, sort of like it did for me.

“Jimmy is the polar opposite. He’s always so active and motivated, but he’s more of a rebel. He’s a hard worker, but he can get too hot-headed and emotional about things. He’s only been here for five years, but he has an MBA and has been leading my sales team since he started.”

“Is there anyone else who plays a big role in the company?” Emmy asked.

“Yes, my sister, Gail. She’s been with me for 25 years. She’s a great mentor to Gene and Jimmy. She’s always told me she wants to become an owner, but she knows she doesn’t have the personality to be the face of the company.”

“And have you ever left the three of them to run the business without you?” Emmy asked.

“I used to, but whenever I would, Gene would complain that Gail was making him do things he didn’t want to do: things like maintaining a regular schedule and documenting his processes in detail.”

“And how did you resolve things like that?”

“I’d usually put out the fire myself. I’d tell Gene exactly what I needed him to do, and then he’d do it. I guess he needed to hear it from me instead of Gail.”

Identifying the ‘Why’ in Family Business Transfers

Owners decide to transfer the business to their children for a variety of reasons. It may be that they think it’s the best way to assure themselves of financial security. It may be to give their children a job. It may be to continue the legacy of family ownership. Whatever the reasons, advisors must help owners identify the why.

When advisors know what their clients want or are concerned about, it more accurately guides how they should design the ownership transfer. It’s essential for advisors to ask questions until they fully understand why the owner wants to transfer the business to their children and whether those children can adequately carry the business forward.

After Linda told Emmy about her children and sister in the context of the business, Emmy asked several probing questions:

  • Does Linda need significant money to achieve her goals?
  • Can the children run the business well?
  • Will they get along?
  • If there are other children not involved in the business, will they nevertheless expect ownership?
  • Do her two sons even want ownership?

Emmy soon discovered that Linda had grown the business after taking it over from her father, and it was clearly important to her that the business continue in the family. She had spoken to her sons about transferring the business to them, and they were more than agreeable. But Emmy realized that moving forward with transferring ownership to Linda’s sons at this point would be a mistake.

“I’m a bit concerned about Gene’s need for motivation and his complaints about Gail while you were away,” Emmy told Linda. “It also sounds like Gail really wants a shot at ownership, even if she’s not suited to be the face of the company. Does she know that you intend to not give her ownership?”

“Not yet,” Linda said. “But I’m open to ideas about how to keep her on as a mentor to Gene and Jimmy.”

As Emmy continued to learn more about the family dynamics and the simmering tensions that seemed to exist, she realized that her experience did not extend to dealing with these issues. She needed some outside help.

“Linda, I think it might be a good idea to set you up with a business coach or a family business consultant to get a better feel about where everyone’s talents lie and how everyone feels about taking on new responsibilities. They are trained to deal with the issues and challenges inherent in many family business transfers. Let’s get their take on what we need to do before we proceed with designing ownership transfers. I can introduce you to an experienced consultant.”

“That might be a good idea,” Linda responded. “But what about my cash flow? Shouldn’t we also figure out why that’s not growing?”

“We should,” Emmy said, “But we should do that separately. In my experience, good cash flow stems from strong management. And that management is ultimately going to be your sons. Let’s first deal with the concerns we have about them as owners.

Planning in Steps and With Help From Experts

Like most business owners, Linda wants to tackle as many problems as possible right away. While this ambition is admirable, it can often muddle the planning process. Emmy recommended that Linda address potential family conflicts before trying to address stagnant cash flow. She suspected that Linda’s plateauing cash flow had something to do with the strained relationships among Gail, Gene, and Jimmy, and so she called on qualified experts to weigh in on her suspicions.

Next week, we’ll look at how Emmy used the information from her Advisor Team to help Linda make the best decisions toward her Exit Goals.


  • It’s prudent to deal with intra-family issues among children before transferring ownership to them.
  • Advisors should include business coaches and at least one family business consultant on their Advisor Teams.
  • Other Exit Planning challenges, such as improving value or cash flow, are typically dealt with by management and the owner. Typically, owners and advisors must resolve any conflicts among family members (e.g., not working well together or not being ownership material) before they try to solve other issues.

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