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CPA Now
Jan 29, 2020

Family Business Succession Planning

Mark Sullivan, CPA, CGMABy Mark Sullivan CPA, CGMA


MoneyLife100When you are part of a family business, succession planning is one of the toughest discussions to have. It involves confronting the hard fact that, eventually, the day will come when other family members will not be with us or not involved in the day-to-day operations of the business. Succession planning involves tough decisions, including who will have ownership and who has management responsibility in the company. The keys here are to begin these discussions well before you think it is necessary, involve members of the family that will be involved in the company’s future, and consult professionals who have experience with succession planning.

Depending on the entity structure, such as in a sole proprietorship, succession planning may entail passing along assets that are comingled with those of the current owner. If operating as a corporate entity, and the company may need to reorganize its shares so that they can be passed to others, either immediately or over time while the current owner maintains control. Family trusts can be established to protect company assets while providing income to family members under certain situations. So many variables – such as tax consequences, retirement goals, management, and ownership – need to be discussed before the structure of a succession plan can be implemented.

Family meeting to discuss business succession plansThe eventual management and ownership of the company need to be clearly identified and accepted by all those involved. The success of the business will require family members to understand their roles in the organization. The correct choice of who will control the direction of company may be one or more individuals, even if ownership is equally divided among family members. Leadership is essential to a business’s survival, so a tough decision may need to be made by the family to have one person direct the course of the business. This may not always be the oldest family member or the one most involved in the company.

Estate planning and exit strategies may play a role too. If a company has been built by family members who spent years developing the organization, they naturally hope it will thrive in the future and provide economic support to future generations of the family. It may be necessary to consider what assets they will need to exit the business with when they retire. Estate planning will impact the structure and how assets are transferred, too. Some family members may not want to be involved in the company going forward. Will they have ownership within the company, will their shares be reacquired by the company, are there buy/sell provisions, or will other compensation outside of the company be considered.

A written succession plan that involves family members is recommended to avoid disruption in the future. The written plan can document aspects such as who has management responsibilities, what the ownership structure is, and buy/sell agreement terms. The agreement of the family and the formalization of a written plan will provide clear guidance as to the intent of the family.

In a family-owned business environment, many pieces are needed to properly implement a secession plan. Consult a CPA or lawyer to have as a resource. In the end, that extra time spent developing a plan with trusted advisers could lead to successful planning for yourself, your family, and your company.


Mark Sullivan CPA, CGMA, is the controller with K&I Sheet Metal Inc. in Pittsburgh. He can be reached at Mark.Sullivan@kisheetmetal.com.


To get more personal finance and small-business tips, visit PICPA's Money & Life.



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Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in herein does not constitute accounting, legal, or professional advice. For professional advice, please engage or consult a qualified professional.