Taking a Little Off The Table

Apr 29, 2011 9:00 AM, By David Thayne Leibell, Partner in the Stamford office of Wiggin and Dana LLP

A family business owner's dependency on the business for cash flow is an often unspoken obstacle to beginning a healthy succession process.

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An astonishing 93 percent of family business owners depend on the family business as their primary source of income, according to the 2007Laird Norton Tyee Family Business Survey.¹ This statistic has far ranging ramifications on the success or failure of family business succession. A family business owner's dependency on the business for cash flow is an often unspoken obstacle to beginning a healthy succession process. Why would a business owner transfer management and ownership of the family business to the next generation, without being certain about his own retirement security and that of his spouse?

As advisors to family businesses, we've all seen clients who fit this description: an entrepreneurial business owner with a very valuable business and business real estate, a large principal residence and vacation home, but little money in a brokerage account or in retirement plans. The business owner supports his lifestyle by taking distributions from the business. Aside from the lack of investment diversification, this approach is all well and good until the business owner begins thinking about passing ownership of the business to the next generation with a minimum of transfer taxes.

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