Considerations When Transitioning Your Family Business to Your Children

Transitioning a family business to your children is a significant decision that requires careful planning and thoughtful consideration. According to the Family Business Institute, only 30% of family businesses make it to the second generation, and just 12% survive into the third. Below are some key questions to explore as you consider passing the torch to the next generation.

Whose Goal Is It? Yours or Theirs?

I recently met a business owner who told me she planned to transition her business to her daughter. This was her sole exit strategy. The challenge? Her daughter is only 10 years old. It’s far too early to know whether she’ll be interested, passionate, or have the skills needed to lead the company. When I asked the owner about a Plan B, she confidently said, “That’s not a concern.” It was clear the goal was the mother’s—not the daughter’s.

Don’t assume your child shares your vision. They may not have the same drive or passion. It’s better to support their dreams than to pressure them into yours.

Should They Join the Business Right Away?

I typically advise children to work elsewhere after completing their education before joining the family business. Gaining outside experience can be incredibly valuable—it can affirm their interest in the business and bring fresh ideas and perspectives.

If their only experience is the family business, they may struggle to fully appreciate their role or experience FOMO (Fear of Missing Out) when speaking with peers. Think of Jimmy Stewart in It’s a Wonderful Life!

Entitlement or Pressure?

In my experience, the next generation often falls into one of two extremes: entitlement or pressure.

Some feel they are owed the business. There’s even an acronym (PIE) used in succession circles:

• First generation: Passionate

• Second generation: Interested

• Third generation: Entitled

This isn’t always true, but it’s a cautionary tale. I often begin succession planning by interviewing the next generation to assess whether they have the right mindset—a healthy respect for the business, not a sense of entitlement.

On the flip side, I’ve seen passionate successors crushed by pressure. One father told his son, “Whatever you do, don’t screw this up.” Not helpful. Being the new owner already comes with sleepless nights. That’s why I recommend building a support system beyond the parents—such as a Board of Advisors—to offer guidance and reduce the emotional load.

What If One Child Wants In and Another Doesn’t?

Not every child will want, or be suited, to take over the business. That’s okay. Open, honest conversations are essential. Talk through their interests, capabilities, and expectations.

Clearly define roles, responsibilities, and boundaries between family and business. Ensure the child not involved in the business still feels valued and respected. A family agreement can help prevent resentment and protect family harmony.

How Will the Business Be Valued and Paid For?

Valuing the business fairly—and ensuring the next generation can afford it—is critical. Common strategies include:

• A seller note with flexible payment terms

• A discounted valuation

• Gifting part of the business using estate exemptions

• Continuing a paid role for the current generation during the transition

  
  

Does the Next Generation Need to Run the Business?

In short: No. Ownership doesn’t require operational control. Many successful businesses are run by a hired President or CEO, while the next generation focuses on their strengths—whether that’s sales, operations, or another area of passion.

What If Their Risk Tolerance Differs From Yours?

This is a common generational divide. The next generation may want to scale faster—add facilities, pursue acquisitions, expand aggressively. That’s why strategic planning and clear financial projections before the transition are essential.

When Is It Time to Step Aside?

Be self-aware. At some point, your continued involvement might become more of a distraction than a help. Make sure your role post-transition is clearly defined and adds value—not confusion.

The heart of a successful transition lies in ensuring both your business and your family thrive. That means aligning the business transition with your children’s interests and strengths, creating clear succession and ownership plans, and prioritizing open communication. Done right, you’ll secure your legacy while empowering the next generation to build on it.