Strategies for family business transitions.

• Author: Fitts, James A.
• Position: PRIVATE COMPANIES

Transition is a fact of life for all businesses. Chief executives retire or move to other companies, division leaders get promotions and companies get sold or merge with other businesses. But for family businesses, transition can be more complicated and have wider ranging impact.

The implications for the business are obvious: a smooth and successful transition can assure the company will Continue to be viable into the future.

When planning a transition, family business leaders must also consider the interests of various family members. A mishandled transition--whether to the next generation or to new owners from outside the family--can cause fractures in a family that could take years to repair and the discord can undermine the deal and cause disastrous problems within the company.

One of the most important elements of any family business transition is putting together the right team of advisers. Any company planning for change needs a team with specialized skills and experience that is able to balance family goals with the business needs.

Building the Team

Certain advisers should be part of any transition, including an experienced corporate attorney and a knowledgeable accountant who is a certified public accountant. Depending on the nature of the transition, a mergers and acquisitions specialist also may also be required. With family businesses, wealth advisers should have a prominent place on the team, since the owner's life after the transition is an essential consideration in how the process will proceed.

If the company is being sold to an outside group or another business, the attorney should have M&A experience to better protect the family's interests and provide a wider range of structuring ideas. The CPAs should have M&A experience so they will know how prospective buyers will be evaluating the financial statements and how to build enterprise value.

Many deals fall apart or fail to come together because a family has unrealistic assumptions about the business's worth. Sellers also often benefit from engaging an investment banking firm to market the business, screen for viable purchasers and provide market knowledge about similar purchases.

Preparing the company for transfer to the next generation requires an experienced trust and estate attorney to recommend deal structures that will help the family achieve its professional objectives while working within the existing gift and estate tax framework.

These are important considerations...