September 12, 2022 by Interchange Capital Partners
By Ahmie Baum, CFP® CFBA
Running a family business intertwines the personal and professional in unique ways. Your business represents not just financial value, but your family's legacy, values, and future. That's why thoughtful succession planning proves vital for family business owners considering their eventual transition.
Recent data shows that while 70% of family business owners report having a succession plan, 50-60% express concerns about their plan's long-term viability. This uncertainty often stems from the complex dynamics between family, business, and ownership.
At Interchange Capital Partners, we've spent 45 years working with family businesses, and one thing has become crystal clear - succession planning involves much more than just transferring assets. Through our work in business consulting, we've seen how family businesses thrive when they recognize and navigate what we call the 4 interchanges: the individual's goals, the family's dynamics, the business's operations, and the ownership structure. Each of these areas brings its own set of challenges and opportunities.
To help families start thinking about these interchanges and assess where they stand in their succession planning journey, I often walk through 10 key questions with them. These questions have sparked some of our most productive conversations about what may be the largest financial transaction of their lives:
When do you want to exit your business?
Deciding when to leave your business is the foundation of a transition plan. It will determine your time frame and help to assess the speed and intensity with which the plan should be implemented. Transitioning in two years is a much different picture than transitioning in ten. Having clarity on timing helps shape the entire succession planning process. Have you decided when your exit will be?
How much cash will you need for your lifestyle when you leave?
This is a key component in determining your lifestyle after your transition. If you plan to continue working, your annual cash flow needs from the transition plan will probably be less than if you plan to retire completely. Understanding the financial implications for both the business and the family is crucial. What ongoing income needs should the succession plan address?
What is your business worth today?
Knowing your business's worth provides a foundation for succession planning discussions. This influences everything from family equity distributions to tax considerations in transferring ownership. Do you know what your business is worth?
How attractive is your business to potential successors?
Just because you see endless potential and value in your business doesn’t mean others will. Sometimes the value you see doesn’t translate well when trying to market the business. Understanding where your business stands is a key step in marketing it for sale.
Who are your potential successors?
Do you want to transfer your business to someone in the family? To a key employee? Or sell it to a third party? Knowing who will be taking over is a critical aspect of both the business transition plan and the long-term success of the company. Do you have a plan for whom you will sell or transfer the business to?
Are you maximizing your income before and after the transition of your business?
There’s a lot that goes into maximizing income. Are you aware of the tax consequences? Do you plan to invest the funds? Working with experienced business consultants helps identify tax implications and investment opportunities. Have you spoken with a consultant regarding how your finances will change once you sell your business?
How do you sell your business to a third party and mitigate your taxes?
Between understanding your cost basis and knowing the true value of your business, it can be challenging for business owners to navigate the tax implications of a sale. Don’t lose out on profits because you’re not an expert in taxes. Have you spoken with a CPA about the tax implications of selling your business?
Do you know how to transfer your business while reducing taxes and enjoying financial sturdiness?
There are many tax-efficient ways to transfer a business that don’t involve selling to a third party. If you plan to keep the business in the family, or transfer it to employees, ensure your plan is as tax-efficient as possible. Different approaches suit different family and business situations.
Do you have a plan in place if the unexpected happens to you?
A business transition plan is not the same thing as a succession plan. Having both is a crucial component in the long-term viability of your business. Something could happen unexpectedly years before you had planned to step away. Who would take over and how would the business run if that were to happen? Do you have a plan in place if you could no longer run the company?
Have you taken steps to preserve your family’s wealth?
It’s very common for business owners to have large amounts of personal wealth tied up in the business. That’s why it’s so important to consider what would happen to your family’s wealth if something happened to you unexpectedly.
How Did You Score?
Now that you’ve had a chance to read through the questions, how did you score? If you could answer “Yes” to:
Fewer than 3 questions: It’s time to start succession planning discussions, you are leaving a lot on the table.
3-6 questions: You have a good start, but some critical succession planning pieces are missing.
7+ questions: Congratulations! You are well on your way to a successful transition. You may want a second opinion to make sure the I’s are dotted and the T’s are crossed.
No matter where you fall on this scale, working with an experienced family business consulting firm is never a bad idea when it comes to building a solid business transition plan. Interchange Capital Partners understands the interplay between family relationships and business decisions, and how proper succession planning supports both.
To learn more about our collaborative approach to family business consulting and succession planning, email us at team@interchangecp.com or call 412-307-4230 to schedule a conversation about your family business's future.
About Ahmie
Ahmie E. Baum is the founder and executive chairman of the board of Interchange Capital Partners, a premier family business advisory firm committed to empowering family-owned businesses. With over 45 years of experience, Ahmie specializes in guiding families to safeguard and grow their wealth through our strategic Clarity Foundation™.
Passionate about helping multi-generational family businesses, Ahmie excels at navigating their unique challenges, allowing them to focus on what they do best. One of his greatest joys is getting to know the firm’s clients personally, listening to their stories, understanding their journeys, and identifying and solving for the challenges that keep them up at night.
Ahmie collaborates closely with clients to help design comprehensive plans that address their obstacles, seize opportunities, and leverage their strengths. As he manages each family's complex and unique situations, Ahmie takes on their challenges as his own, fully committed to helping them work toward achieving their goals. His mission is to guide clients through their uncertainties, enabling them to move beyond their fears and confidently pursue their dreams.
Ahmie began his career at EF Hutton in 1979, eventually rising to the position of Senior Vice President. In 1993, he transitioned to Paine Webber, later acquired by UBS, where he spent nearly 27 years. During this time, he earned an Executive Certificate in Financial Planning from Duquesne University and obtained his CFP® designation. He holds a Certificate in Family Business Advising (CFBA) from the Family Firm Institute. He has been actively involved with Strategic Coach, an internationally renowned entrepreneurial coaching program, for over 20 years. Additionally, he has earned certificates from The Growth Institute, specializing in business growth, scaling, and cash management.
When he’s not working, Ahmie enjoys spending time with his wife, Sara, their three children, and three grandchildren. He recognizes that health is wealth, so he has committed to daily yoga, meditation, and plant-based eating. His other hobbies include woodturning, golf, reading, listening to music, and biking. He is active in his community, has served as the Foundation Chair of the Jewish Federation Community Foundation of Greater Pittsburgh, and supports various philanthropic endeavors. To learn more about Ahmie, connect with him on LinkedIn.
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