3 Questions a Financial Planner Should Ask a Business Owner With Kids

June 27, 2024

As a financial planner who takes care of business owners, do you ever deal with clients who want to pass their business on to their children?  Taking care of the next generation may be an important value to your clients, and you are already heavily involved in making sure that the cash flow generated by their investments is set up to best benefit the family in the future. Here are three questions to consider when it comes to passing the business on to the children.

1. Will Your Children Take Over Your Business?

First, are the children interested in taking over the business one day? Sometimes the idea of passing the business along is a wish of the parents that they haven’t discussed with their kids. The kids may have no idea that this is an option or desire. Since so many owners only look to transition out of their business later in life this may be an awkward, but necessary, discussion to have. The children may be middle-aged as the owner approaches retirement age. Where are they in their careers? Are they willing to drop their personal employment plans in order to join the company or are they more interested in pursuing the path that they are already on? Getting everyone on the same page a few years in advance is critical due to the next two questions to think about.

2. Is Your Child Qualified to Take Over Your Business?

An important factor to consider is if the children are equipped to manage the business. If there is a willingness and interest to join the company and assume the management of the business, it does not necessarily follow that the adult children are capable of doing so. Several factors come into play here. Do they have the necessary education and experience to run the company? What would the owner be looking for on the CV of his replacement and is he looking at his children with the same critical view?

Asking this question in advance allows the children the time to acquire the necessary education or experience. In fact, it might even be a good idea to join the firm a few years early in order to gain a better understanding of the operations. Smart business owners often hire their family members into a business but then, depending on the size of the team, have them report to someone else. Let them learn to be an employee and to get real feedback without the filter of family dynamics clouding the experience.

An added value to this is that it also becomes an opportunity to gain the respect and trust of the existing staff. Parachuting a family member into the business as the owner is getting ready to retire has a high risk of creating distrust and resentment. Let them learn to lead from a position of respect rather than authority “handed down” from the boss.

3. How Will You Resolve Tensions in the Case of Multiple Children?

One last question in order to avoid potential family drama. What if only one of the children will run the business? One of the biggest challenges that we see is when only one child is interested or suitable to get involved in the business. Did they “buy in” to the business with their own money, or was it handed to them? Think of the resentment that this can create. It can seem that this child received an unfair inheritance in advance. The succession problem was solved, but a new one was created. We have even seen business owners sell their business rather than face this emotional conflict even though they had capable children who were interested in doing the job.

As a financial planner, you are in the best position to help resolve this issue. With a third party evaluation from a trusted source you can equip the family to understand exactly what was passed to one of the children. You can then, with the owner, formulate how best to make up for this by changing the inheritance of the others. If the intent is to equally divide the future estate amongst the heirs you can put in place a mechanism to account for the value given earlier on in the gifting of the business. Problem solved. Maybe. When people are involved, it is never just about the numbers. However, by addressing this situation in advance and clearly communicating to all parties what is happening, you can save your client from a great deal of unnecessary heartache.

That, after all, is your superpower as a financial advisor. You are there to help shape and protect the future of your client and his family. Hopefully these three questions will help you to accomplish that goal.


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