When it’s time to pass the family business forward

For many business owners, keeping the business in the family is a top priority, but they may not realize that, in order for the transition to go smoothly, the process should start well before it’s time to pass on the reins.

Instead, business owners may have more immediate needs on the front burner. Jon Bartel, Oklahoma City market manager for Bank of Oklahoma, said he has worked with clients who initially sought traditional banking needs such as lines of credit, equipment financing and cash management. "But over time, the conversation naturally shifted to ownership transition. Because those discussions were built on an existing relationship, we were able to introduce the Business Transition Services group early and help the client make thoughtful, long-term decisions," he explained.

It’s always better to start the discussion sooner rather than later because, even when multiple generations share a desire to keep a business in the family, successfully transitioning a business requires careful planning and often presents challenges that take years to address, according to Mike Benedict, BOK Financial® business transition advisor.

For example, members of the next generation may not be financially positioned to purchase the business outright. "¿Cómo se vende un negocio de $20 millones a alguien que gana $150,000 al año? Bueno, se puede hacer, pero lleva tiempo y requiere planificación", explicó.

Alternatively, simply gifting the business also isn't a realistic option for many families, Benedict noted. "La mayoría de los padres preferirían simplemente dar el negocio a sus hijos", dijo. "La realidad es que muchas veces no pueden permitirse hacer eso porque los padres necesitan extraer algo de valor de la empresa para poder pagar una jubilación cómoda".

And even after ownership transfers, the next generation may struggle to maintain the same lifestyle their parents enjoyed if the business has not continued to grow, Benedict added.

Balancing ownership and family dynamics

Beyond financial hurdles, business owners often face the challenge of being fair to family members who are active in the business while also treating nonparticipating children equitably.

Benedict described a hypothetical scenario involving Bob and Cindy, whose daughter Linda plans to assume 100% ownership of the family business within five years, while their son Steve—an actor—has no interest in participating.

To keep things balanced, Bob and Cindy may consider giving Steve nonbusiness gifts of equal value or placing investment assets into a trust that he would receive later. "You typically will have business-active children and nonbusiness-active children, and you will have business assets and nonbusiness assets. Le recomiendo encarecidamente que evite mezclar los dos", dijo Benedicto XVI. "He visto ejemplos en los que se han mezclado, y puede generar mucha tensión dentro de la familia. Hace que el Día de Acción de Gracias sea muy incómodo".

Drafting a succession plan takes time and collaboration

Moreover, having a strong interest to keep a business within the family is not enough in itself. Additionally, owners need a formal succession plan and drafting one can be a lengthy process, Benedict cautioned. It typically involves collaboration among business transition advisors, accountants and legal professionals.

Valuations, discovery and family discussions alone can take several months, he explained. "Y eso es solo la parte de planificación en sí", dijo. "Luego, la implementación toma otro par de meses para redactar todos los documentos iniciales y ponerlos en funcionamiento, por lo que no es algo que normalmente se puede hacer en una o dos reuniones".

Communicating the plan

Once a transition plan is in place, clear communication, especially with a business’s employees, is critical, Benedict noted.

"Remember that your business is the livelihood for your employees, and they will want to know that a plan is in place," he explained. "No necesitan conocer los detalles, y es posible que no quieran conocer los detalles, pero se sentirán reconfortados al saber que hay un plan y se sentirán más seguros sobre su entorno de trabajo".

Guidance is key

Finally, having a defined exit timeline and guidance from experienced professionals along the way can help ensure a smoother transition and more efficient use of available tax strategies, Benedict said. "It's important to have a plan and work with sophisticated advisors that have experience in this area," he noted.

And it also helps to work with professionals who know the family's business well, Bartel added. "Supporting a client through a business transition is part of the trust built over time," he said. "When you truly understand how a client operates and what they're trying to accomplish long term, succession or ownership changes become another area where the bank can add value-not just provide capital," he explained.

"For many business owners, the company represents both their livelihood and their legacy," he continued. "Having a banking relationship who understands both sides of that equation can make a meaningful difference during major transitions."