Liquidity drives options in financial planning for a generational transition

Transitions require capital and renewed commitment to the business. A generational transition can force difficult decisions. Many owners dream of keeping their business in the family, yet this becomes increasingly difficult over time. Ownership stakes become dispersed among family members whose priorities are heavily influenced by their age and involvement in the business. Older members approaching retirement typically prefer high dividends, while the younger generation might want to reinvest for long-term growth. Family members can end up feeling stuck because the bulk of their net worth is tied to the business and they have no way to monetize their equity stake.

In the face of such complexities, the goal of keeping the business in the family is sometimes abandoned for an outright sale. In some cases, the family may not be aware of other available alternatives. Fortunately for families and their businesses, there are many nuanced options beyond the binary decision of whether to sell or not. Each solution has its own advantages and disadvantages, as explained below.

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