Business Transition Planning

Managing the financial and psychological issues.


I admire entrepreneurs who have created—sometimes from just an idea or thought—a successful business. Having started and operated companies myself, I know the blood, sweat, and tears that is required. In the early days of the venture, most sacrifice receiving a regular paycheck, having employment benefits, and the security of working for a more established company. And then there is the sacrifice of time—the early mornings and late nights, the cold dinners and missed baseball games. For many business owners, the independence and freedom to chart your own course is worth it. While many businesses do no prosper, there are those that overcome the odds and flourish.

If you are at the point in life where you are considering selling your business or transferring it to family, this may be a bittersweet decision. Business owners in this situation have told me that they feel proud of what they’ve accomplished—almost as if their business is a child they’ve raised—and at the same time anxious about letting it go. They’ve expressed doubt and worry about what will come of the business they’ve invested so heavily in to start and operate.

Whether you sell to an outsider or transfer ownership within the family, nobody who receives your business can ever quite appreciate what it took to build it. And so for many business owners, it can be an emotional rollercoaster when you think about selling. But that’s just the beginning. The questions pour out...

  • “Should I sell it to an outsider? If so, what is that process like?”
  • “How can I keep the business within the family?”
  • “What’s the most tax-efficient way to structure the sale or transfer?”
  • “What can we do if my children don’t have the assets to buy the business?”
  • “There is conflict within the family and I’m not sure how to resolve it.”
  • “If the kids are fighting over the company now, what’s going to happen when I’m not there?”

At Pacifica Wealth Advisors, we can help you navigate this process unlike an investment banker, business broker, CPA, or M&A attorney. Are these professionals necessary? Yes, you will surely need tax and legal advice, but before you negotiate the deal and structure the taxes, it makes sense to determine if the deal you are fighting for is even the deal you want. We provide not just financial advice, but we can help you first determine the most suitable deal for you—yes financially, but just as importantly, emotionally and with your ultimate goals in mind.

We can help you:

  • Determine who you should sell the company to;
  • Work with your legal and tax team to negotiate the best deal with a buyer;
  • Assess which family member should take over the business;
  • Structure the best deal for your business whether you sell to an outsider or transfer within the family;
  • Handle conflicts within the family;
  • Work with the children who will be taking over to prepare them for their new role;
  • Create a new chapter in your life now that you won’t be running the company day-to-day;
  • Manage your wealth so it provides the security and lifestyle you desire;
  • Navigate throughout the entire business transition process and beyond.

Selling a company or transferring a company to family has a natural cycle with ebbs and flows. This is to be expected. But we’ve found that when business owners drive the process, they create better deals, feel more confident, and get what they want. But often this is not what happens.

Business owners who are in control and know exactly what needs to be done in every aspect of their business, can feel a bit out of control when it comes to selling their company. They are outside of their comfort zone dealing with tax, legal, and financial issues that they’ve never had to consider. At the same time, there may be internal issues within the family that are causing tension and discord. The uncertainty can lead to frustration and ultimately to disengagement.

Family Business Transition Planning


The family business can be illustrated as three overlapping circles: the company, the owners, and the family. The model shows the range of interests that exist, and where they intersect or diverge. It demonstrates how the perspectives of the different parties depend on where they stand within the three circles as much as they do on the personalities of the people involved. It also illustrates how the family dynamics color the business itself. If there’s unhealthy conflict between the family members, it will spill over into the way the business is managed and owned – whether that’s through disputes over money, charges of nepotism or infighting over who should head the business when it passes from one generation to the next.

Conversely, if relations within the family are healthy, the business is more likely to be healthy, too. Solid, mutually supportive bonds help to encourage loyalty to the company, make people more motivated and facilitate decision-making qualities that mean the business itself is better equipped to deliver strong results.

The most successful family firms are those in which there’s a good balance between the three circles, with professional management, responsible business ownership and a harmonious family dynamic. Such companies tend to have clear written agreements about the composition and election of senior executives, the decisions that require a majority vote and the conditions in which family members can (or can’t) work in the business. They also have robust governance procedures; bring in outside directors and managers, where necessary; and monitor the performance of relatives who are working for the business, just as they do the performance of outside directors and managers.

Ownership issues are likewise separated from family issues. The most long-lasting family firms typically have rules about how shares can (or can’t) be traded inside and outside the family, and when shares can be sold – be it to raise fresh capital for the business or to release cash for the family members. In other words, they provide solid mechanisms for ensuring the business has enough funds to grow while maintaining the family’s control.

What is a family business?
A family business is an enterprise in which the majority of the votes are held by the person who established or acquired the firm (or by his or her spouse, parents, children or children’s direct heirs); at least one representative of the family is involved in the management or administration of the firm; and, where the company is listed, the person who established or acquired the firm (or his or her family) possesses 25% of the voting rights through his or her share capital and at least one family member sits on the board.

Lastly, in such firms, the needs of the family itself are given due weight. When most of the family’s financial resources are tied up in the company, it may be reluctant to take risks that might actually be good for the business. It may also have insufficient assets to treat all the family members fairly, regardless of whether they work for the company. Professional wealth management enables a family to spread its risk and manage its other investments as effectively as possible, thereby helping to preserve a healthy family dynamic.

In short, in the best, most enduring family firms there are clear boundaries between the business, the owners and the family, with separate forums for discussion of ownership and family matters outside the boardroom. And there is separate financial provision, wherever feasible, for heirs who don’t work in the business. This is particularly important when economic conditions are difficult, as they are for many companies right now.

It’s widely recognized that one of the biggest risks facing any family owned business is the transition from one generation to the next. The Family Firm Institute estimates that only 30% of US family firms survive the shift to the second generation, only 12% are still viable in the third generation and only 3% make it to the fourth generation or beyond.

According to PricewaterhouseCoopers, their research bears this out. Thirty-one percent of the companies in their survey are still managed by the entrepreneurs who established them. Of course, some family firms are effectively ‘lifestyle’ businesses. If they’ve provided a comfortable income for the founder and his or her dependents, they’ve arguably served their purpose. But others generate a considerable amount of the world’s wealth; indeed, some reports suggest that family firms collectively create between 70% and 90% of global GDP per year. The death of such companies is therefore a loss to the community at large.

So, what accounts for the high attrition rate? In some cases, the founder’s simply too caught up in the day-to-day activities of running the business to plan for the future. But many entrepreneurs are also reluctant to cede control. The passion that drove them to set up their companies in the first place prevents them from stepping back from the helm. Selecting a successor can also be an extremely emotive issue. If more than one relative is interested in taking over the business, for example, it may be difficult to choose the best candidate without offending other family members.

Yet careful planning is essential to ensure a smooth transition. As noted in a PricewaterhouseCooper’s survey, a good succession plan outlines how the succession will occur and what criteria will be used to judge when the successor’s ready to take on the task. It eases the founder’s concerns about handing over to someone else and encourages the heirs to work in the business, rather than embarking on alternative careers. And it endeavors to provide what’s best for the business, recognizing that competence is more important than family connections.

For the owners that are planning on transferring the business to children, they have unique worries. In moments of reflection and pure candor, many have told me they worry about not just the future of the company, but how it will change the family. I often hear comments such as:

  • “I don’t think my children are ready to take over the business.”
  • “How can I transfer the business without causing a chasm in the family?”
  • “I worked hard to build the business but my children expect me to just hand it to them.”
  • “I could make more money if I sold the company to an outsider, but if I did my children would never forgive me.”
  • “My children are counting on this business, but worry they don’t have the tenacity to run it.”