Lower-middle market businesses are the runway for the American dream, providing entrepreneurs with a route to financial independence and long-term economic prosperity. After years of growth (and success), many family-owned businesses reach a pivotal moment when it's time to plan for the future. Whether the decision is to sell, hold, or transition the business to the next generation, these closely-held businesses are often the cornerstone of family wealth. Thoughtful and strategic planning ensures that a business' reputation and legacy are strengthened and preserved for years ahead, allowing it to remain impactful for future generations. By implementing well-structured and thorough succession plans, business owners can safeguard their successes and create lasting opportunities for themselves, their family, and future stakeholders.
Going to Market: Pros & Cons
The classic example of family business planning is going to market, or preparing for a sale or transition to new ownership. On one hand, sales of closely-held businesses are influenced by latent issues of valuation, financing, and other potential pitfalls. On the other hand, a sale provides a direct injection of liquidity, unlocking wealth and helping owners transition into another phase of life. A sale may be best for those who want to get out of a business and pursue new endeavors.
The business could also continue operating in the family — even without the daily operations of legacy owners. The power of restructuring allows legacy owners to step back from the day-to-day, remain involved, and add flexibility. Restructuring is an option for businesses with a strong management team that can continue profitable operations.
Customizing Your Transition
Transitioning the family business takes many forms. Advisers have a diverse set of tools and strategies to customize succession plans for different businesses. By keeping an eye toward tax, business and corporate considerations, they assist business owners in navigating the complexities of such changes. Transitioning could be from legacy owners to current management, intra-family or even a hybrid — all bearing unique considerations. Transitioning the business may be best for those owners looking to pass an income-producing asset onto future generations.
Navigating Your Options
Succession planning for the family business takes one of three main forms — selling, holding, or transitioning the business. In all circumstances, legacy owners can guard their visions with creative, yet comprehensive planning to keep their assets running in tip-top shape.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
