How to take over a family business without ruining relationships

Taking over a family business combines two of the most important parts of our lives — family and work — in a potentially volatile process that can affect relationships and keep the transition from being as smooth as it could be.

  • close
    A family eating at a restaurant in 2015 in Rockville, Maryland.
    Melanie Stetson Freeman/Staff/File
    View Caption
  • About video ads
    View Caption

Taking over a family business combines two of the most important parts of our lives — family and work — in a potentially volatile process that can affect relationships and keep the transition from being as smooth as it could be.

We asked Anna Sergunina, a financial advisor who works with small businesses and who’s also a member of NerdWallet’s Ask an Advisor network, about significant things to consider when a business is changing hands and family is involved.

What are key things to keep in mind when taking over a family business?

Be aware of the possibility of tension, which is related to different attitudes family members might hold toward the business. When someone owns a business for many years, it can become an extension of who they are — it becomes their “baby.”

The new owners might not be as passionate and in love with the business as the founders were. They might see the financial opportunity only, and this can create tension in the transition process.

Hopefully there has been some succession planning in advance, although this can be difficult when it involves family members. Your current level of involvement in the business will affect the takeover plans. It’s much easier to take charge right away, for health or other reasons, if you are already working in the business, for example.

Ideally, the full transition from original owner to new owner should be gradual, with the new owner becoming more of a presence over time. A gradual, well-thought-out transition ensures that clients don’t get scared away, cash flow remains steady, and staff and employees are treated fairly.

In cases of a financial transition, ideally the new owner would pay for the business over a period of time — for example, five to seven years. This would allow time for the new owner to come up with the funds, potentially allowing the use of profits from the business to pay back any business loans required to take over.

A gradual payback schedule also allows both parties to implement a systematic gifting strategy for tax purposes. Parents can gift interest in a business to children from year to year, free of gift taxes within certain parameters. The annual amount allowed to be gifted tax-free is $14,000 per person, per year. This strategy also allows for the business interest to be slowly removed from the estate of the seller, potential helping save on estate taxes.

What other steps should the new owner take?

I recommend that new owners hire their own legal professional to help with navigating legal documents. And make sure everything is in writing. This helps to avoid uncomfortable conversations with family members at Thanksgiving dinners, because one party might have interpreted a handshake deal differently from the way the other party did. People can change their minds and forget what they said and agreed to, even if they are family members. Having solid legal agreements in place leads to a much smoother process. No one wants to go to court or spend unnecessary money on legal fees.

Any other tips related to family businesses?

Know yourself. Understand your strengths and weaknesses. Even though the family might want you to take over the business, are you the best person? What role should you take? Do you need additional staff support?

It’s also important to start bringing in the right people to help you build the business according to your vision. Finding good talent is the hardest part. I’ve used the Kolbe personality test in my business to better understand the people I’m working with. How might they react and respond to certain situations? How do they process information? Are they detail-oriented? Do they jump into a project or take a bit of time to think? All of these factors are very important to understand as you start adapting to the existing team and building your own.

Anna Sergunina is a financial advisor and the owner of MainStreet Financial Planning, with offices in California, Maryland, New York and Washington, D.C.

This article originally appeared on NerdWallet.

The Christian Science Monitor has assembled a diverse group of the best personal finance bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link in the blog description box above.

Make a Difference
Inspired? Here are some ways to make a difference on this issue.
FREE Newsletters
Get the Monitor stories you care about delivered to your inbox.

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.