Successfully Transferring a Business

A new life chapter

Business Succession: A Family Owned Company


“Charles”, 66 years old and a successful entrepreneur, owned a manufacturing company outside of Los Angeles. About to retire, he wanted to keep the business in the family and transition it to the next generation. The client assembled a team of professionals – his trusted attorney, his accountant and a wealth advisory firm. The role of the wealth advisory firm was to place the owner’s overall objectives within the context of his wants and needs, while coordinating with the ongoing planning processes, estate planning strategies, financial and lifestyle issues that had begun well before the actual transfer.


Our approach was to focus on both the specific and unstated goals of the client.  Charles was concerned by the potential estate tax and very interested in reducing his taxable estate and simultaneously building the eventual wealth of his children, the new owners. He was also committed to donating some of his wealth to charity. We focused on precisely how much of his ownership / control could be retained while minimizing both the income and estate tax consequences as well as choosing the effective date of the transfer.   

We feel that understanding what the client states as their desires and their actual comfort level in transitioning is one of the most important aspect of a business succession. In this case, it turns out that the original goal of transferring the business to his sons was not what Charles ultimately preferred. Charles realized that he had not funded any retirement plan as he loved working. We worked with Charles to create a transition plan that resulted not in retirement, but his ongoing limited participation in the firm with a focus on the business opportunities he wanted to pursue but did not have the time or resources to. 

The firm had earnings of $6 million, and with an industry multiple of 5x EBITDA (Earnings before Income, Taxes, Interest, Depreciation and Amortization), the business had a sale price of $30 million. Charles wanted to create a substantial legacy for his sons, while at the same time ensuring that his spending needs of $450,000 a year would be met. We worked with Charles to identify his core “needs” , distinguishing these from “wants” and “desires” (leaving his sons with a legacy and contributing to charity). By understanding Charles’ attitude towards risk and using our E-Wealth platform and analytical tools, as well as our Strategical® investment modeling strategies, we showed how he could live financially independently for the rest of his life. We also factored in multiple spending scenarios from $250,000 a year, to $650,000 per year projecting what amounts could be used for philanthropy and his family legacy.


The optimal solution in his particular situation was be a bond-orientated 45/55 portfolio, requiring capital of $15.8 million, based on our modeling.

This investment allocation would have a small risk (5%) of experiencing a 20% portfolio correction within the next 35 years. In terms of the business sale, Charles had the option of accepting $30 million upfront, or opting for $20 million up front, while continuing to work as a consultant for 5 years, earning $350,000/year, but having the potential to participate in the business earnings and performance over the near term. This second option appealed to Charles, as he is interested in continuing to be involved in the business and likes the possibility of sharing in the future proceeds of the firm. Lastly, we added a grantor-retained annuity trust, or GRAT, to leverage gifting to the charities and the family.

Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. You should consult a Financial Advisor before implementing any investment strategy. This is a hypothetical example and not meant to reflect the situation or any actual client or the performance of any particular investment. You should ‚Ä®consult a Financial Advisor before implementing any investment strategy.