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Planning for Your Children’s Success: Concerns of a Business Owning Parent

According to the Family Business Institute, only 30% of family businesses survive beyond the first generation.  [https://www.nytimes.com/2012/04/05/business/smallbusiness/how-they-beat-the-odds-to-keep-family-businesses-healthy.html?pagewanted+all&_r=1&].  While there are a variety of reasons why family businesses fail in subsequent generations, it is generally agreed that careful and intentional planning is a key component to reducing that risk.  [https://hbr.org/2012/01/avoid-the-traps-that-can-destroy-family-businesses/ar/1]. 

An early consideration is whether your family will benefit more from the business or from the sale of the business after your passing?  This consideration is especially poignant when there are other co-owners.  Many times privately held ventures are based in large part on the relationships, skills and contacts of the founders.  Many co-owners would never considered starting or running a business with someone else’s children.

A buy/sell agreement between business owners is one tool that can be used to help multi-owner businesses transition smoothly through the death of any owner.  As a starting point, most privately held businesses do not have an available market for partial ownership interests.  A buy/sell agreement between co-owners can generate a market to ensure that your business interests pass monetary value on to your heirs.  Combine a buy/sell agreement with an appropriate insurance plan and you have now generated a succession plan and a funding mechanism in order to ensure value for you family in coming generations.

Royce Lanning

Phone: 281-367-1222

Fax: 281-210-1361

[email protected]ongfirm.com

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