Rick Kozlowski

Rick Kozlowski


(802) 864-5756

rkoz@lisman.com

vermontestateplan.com

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Transition to a Family Member

The transition of your business to a son, daughter or other family member can be a welcome gateway to your retirement.  Unlike third party sales, much of the stress is absent when the transition is to a relative.  Nevertheless, such transitions are often difficult for a number of reasons.  First, and foremost, few business owners are objective enough to fully evaluate the strengths and weaknesses of those close to them.  Many business owners have handed over the family business to a family member only to see the business falter (and sometimes destroyed).  Therefore, the first question you need to ask:  Is my son mature enough to take over the reins?  Does/will my daughter have the skill set to be effective as the CEO?  If you hesitate in answering such questions, then you should think twice about a plan that transitions the business without some controls.

Second, owners are often predisposed to finance, in whole or in part, the purchase of the business by a family member.  Since children generally do not have the resources to purchase the business, and a lender may (or may not) be willing to finance the business, owners often act as the “bank” in order to make the transition work.   Be careful -- if the quality of your retirement depends on a payout from the business you should try to get some of the payout upfront.  Often, a blend between a combination gift/loan to the family member, coupled with traditional financing, will remove some of the risk inherent in a family transition.  If real estate is involved, the real estate can be carved off and held back pending an assessment of how you son/daughter is handling the transition (providing some measure of security for you). 

Finally, do not treat such transitions cavalierly -- if anything, the transition to a family member requires more due diligence than a sale to a third party.  Seek professional counsel on the structure of the transition.  Retain protections and controls that will help you salvage the business if problems arise.

If you have any questions about transitioning your business to a family member, please contact me by accessing the information on the left.



Third Party
Sales


ESOPS


Transitions
to Key
Employees