Academic journal article Journal of Accountancy

Family Business Transition Planning: Family Relationships and Values Can Make Succession of Family Businesses Even More Challenging Than for Other Enterprises. Here Are Some Suggestions for Family Businesses That Can Make Succession Planning and Execution Less Trying

Academic journal article Journal of Accountancy

Family Business Transition Planning: Family Relationships and Values Can Make Succession of Family Businesses Even More Challenging Than for Other Enterprises. Here Are Some Suggestions for Family Businesses That Can Make Succession Planning and Execution Less Trying

Article excerpt

[check] Obtain a valuation of the business regardless of whether it will be transferred between generations or sold. Some owners resist this step if a sale is contemplated, believing the market is a more realistic measure of a company's value. However, a valuation establishes a reference point for negotiation with potential buyers and validates (or corrects) family members' perception of value and becomes the basis for wealth transfer planning.

[check] Maximize the company's value by making sure financial accounting systems are in good order, family expenses are not run through the business, there are no unusual accounting practices, and full audits of financial statements are completed annually Other indicators of sale readiness include expanding sales growth, diversification of the customer base, a stable pool of employees and an absence of pending regulatory actions.

[check] Identify prospects. Outside advisers are usually necessary. An investment banker can provide market perspective and may be able to develop alternative sale options that help meet the seller's long-term objectives. Where a sale to a competitor seems best, an adviser can develop competing proposals before contacting the competition, protecting the seller's market and perhaps pushing the competition into a higher bid.

[check] Negotiate the structure of the sale. The nominal price of a deal is reduced by its current and projected tax impact. If an earnout is proposed, a lower price without that contingency may be more valuable. Any liability retained by the seller clouds the eventual value of the deal.

[check] Set goals that reflect the family's core values and legacy. …

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