Receiving a family business as an inheritance can be a great honor, but can also be a burden without the right planning. While it offers the potential to continue a legacy and build financial security, it also requires strategic planning, management skills, and a clear understanding of the company’s financial health. Many heirs struggle to continue operating a family business. Evaluating the pros and cons can help determine the best course of action.

First Things First, Have a Succession Plan

If your family owns a business that they hope to pass on to subsequent generations, the first task that needs to be completed is a succession plan. In order to do so, you must first take an inventory of your business assets, people, and intimately know what makes your business successful. Next, you need to develop a vision of what your business could look like in the future with the next generation running it. Then, you need to map out the path between what the business is now and what you hope for it to be in the future.

If your plan is going to be successful, both generations should be involved. The prior generation needs to teach and mentor; the subsequent generations needs to listen and ask questions. Once both generations have an understanding of where the business is at now and what brought it to its success, they can together develop the vision for what it could be in the future and address how to confront challenges that are sure to arise.

With the need for a plan in mind, lets discuss the advantages and disadvantages of owning a business.

The Benefits of Inheriting a Business

A well-run business can provide long-term stability, employment opportunities and financial growth for both the heir and future generations. Some key advantages include:

  • An established customer base and brand reputation, reducing the need for extensive marketing efforts
  • Immediate cash flow and ongoing income, depending on the profitability of the business
  • The opportunity to modernize and expand the business while preserving family heritage

Continuing operations may be a strong option if the business is financially healthy and aligns with the heir’s skills and interests.

Challenges of Business Inheritance

Not every business remains profitable or easily manageable after the original owner’s passing. Some common challenges include:

  • Unexpected tax liabilities and debts that may reduce the business’s overall value
  • Disputes among family members or co-owners about management and decision-making
  • A lack of experience or desire to run the business, making ownership stressful or unmanageable

Without a clear succession plan, inheriting a business can lead to operational difficulties, financial strain and legal complications.

Key Considerations before Accepting Business Inheritance

Before deciding, assessing the company’s financial health, legal obligations and long-term viability is essential. Steps to take include:

  • Reviewing business financial statements, including debts, assets and tax obligations
  • Determining whether to manage the business personally, hire outside leadership, or sell the company
  • Consulting with business law and financial advisors to understand legal responsibilities and tax implications

Each option has risks and rewards; seeking professional guidance can help avoid costly mistakes. Book a call with an experienced Frankel Rubin attorney today to get help with your business succession plan.

Frankel Rubin’s attorneys are licensed in Missouri and Illinois and our law firm services all of the St. Louis Metropolitan Area. We are especially convenient for estate planning in Clayton, Brentwood, Des Peres, Frontenac, Glendale, Webster Groves, Kirkwood, Ladue, Maplewood, Olivette, Overland, Richmond Heights, Rock Hill, Shrewsbury, Town and Country, Creve Coeur, Affton, Crestwood, Sappington, Sunset Hills, Maryland Heights, University City, Warson Woods, and St. Louis City.

Key Takeaways

  • Inheriting a business can provide financial stability: A successful company with an established customer base can offer long-term income.
  • Legal and financial risks must be assessed: Understanding debts, taxes and ownership responsibilities is crucial before taking over operations.
  • Family conflicts may arise: Disputes among heirs or co-owners can complicate decision-making and business management.
  • Selling the business may be a viable option: If running the company is not practical, selling it can provide financial liquidity while preserving the value of the inheritance.
  • Professional guidance helps avoid mistakes: Consulting with legal and financial guides ensures a smooth transition and informed decision-making.

Reference: City National Bank “Inheriting a Business? Here Are the Pros and Cons”