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The Major Do’s and Don’ts of Family Business Succession

| July 31, 2020
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All of us at Private Capital Group hope you and your families remain safe and healthy during this continued time of uncertainty and volatility. As we embark on the remainder of 2020, we believe that financial planning is a critical piece of your financial peace of mind.  

One major piece of financial planning includes Succession Planning of a Family-Run Business. For our clients who run their own businesses, we know the financial hardship that you may have endured over the last few months. Family-owned and operated businesses account for a staggering 90% of American businesses, and all together they contribute to about half of the United States Gross Domestic Product (GDP) every year. Unfortunately, less than one-third of family-owned businesses survive the transitionary period from one generation to the next, and only 13% of family businesses remain within the family over 60 years.  

Below are a few of the major Do’s and Don’ts when it comes to Business Succession Planning. 


  1. Begin the Business Succession process sooner rather than laterOne of the biggest mistakes a family business can make when thinking about business succession is, “I’ll get to it someday”. As many of us understand, time can pass quicker than we all may want it to. Unfortunately, many family-owned businesses wait too long to prepare. Along with time, we must prepare for the unthinkable. Although we never want to think about it, we must prepare for it. Taking time to prepare today may be beneficial for both you and your family long-term. Preparing a trust or a buy-sell agreement can keep interests in the family regardless of any future events. 

  2. Understand what your business needs moving forwardOne exercise that may be useful is to think of your business as a living being. What does the family business need moving forward? In preparing a business succession plan, you should not only consider your family in your decision making, but also consider what does the Family Business need at this point and in the future? Once you have established a comprehensive plan, thought out or in writing, you should constantly be reviewing, revising, and updating. A current and frequently updated Business Succession Plan may be the best course of action for you, your family, and your business. 

  3. Consult Business Succession ExpertsMany of us do not prepare our own taxes, many of us do not perform our own medical surgeries, and many of us do not even cut our own hair! Guidance from a Business Succession Expert can help navigate family-owned businesses throughout the process. The expert should save you time, money and headaches. A Business Succession Expert can help put what your Business Succession Plan needs in writing, take advantage of the many gifting opportunities, and point you in the right direction when it comes to strategy and implementation.  


  1. Trying to Give Everyone an Equal ShareAlthough a nice thought, splitting your business into equal shares for your beneficiaries may not be in your business’ best interest. A key factor to remember is, “Management and Ownership are separate business succession planning issues”. The direction in how the business is split is entirely up to the business owner. Different strategies can be implemented for different businesses. Conflict may arise between your beneficiaries if equal shares are distributed but equal effort, time, and resources are not put into the business once the succession plan is in place.  

  2. Insufficient and Unprepared Transfer for a Potential IRS Audit: Unfortunately, when preparing for the transfer of ownership, many Business Succession Plans do not take into consideration the possibility of an audit from the IRS. The IRS has a statute of limitations of 3 years to investigate and challenge the value gifted. Many business owners do not have professionals appraise the business properly before a transfer. If the value of the business is undocumented, the IRS may be legally responsible for determining the value, and you and your beneficiaries may be held liable.  

  3. Transferring Your Business Before You Are Ready, Both Mentally and Financially: Worrying about your children may always be a part of parenting. One mistake we see, however, is when parents transfer their business to their children before the parents are financially stable. This premature move could potentially be devastating to your retirement planning and financial security. Waiting until you, the business owner, are financially secure may be the best strategy for your business moving forward.  

    Mental readiness, however, is a tricky subject. There is no right or wrong answer that an expert can give you. A business owner must prepare mentally for no longer being a part of running the business, especially the day-to-day operations. Only you can fully appreciate the hard work you dedicated to your business throughout the years, and only you can fully understand when you are willing to move on to the next stages of your life! 


Thank you again for your continued trust and confidence in Private Capital Group. We strive to remain consistent in our goals and philosophies to provide exceptional services and dedication to you, our valued client. Please do not hesitate to reach out to your advisor or anyone on the Private Capital Group Team. We know that you have unique financial goals and needs, and we are prepared to assist you any way we can.  

We look forward to seeing and hearing from you all soon!  

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