Generational transfer of a family business

You should start discussions on a generational transfer in your company early enough (preferably several years in advance). Prepare a detailed plan and a flexible timetable. The hopes and aims of all parties, as well as the details concerning the transfer of responsibilities should be set out in the plan.

Determine the best way to carry out the generational transfer in practice. Perhaps you should change the form of business because the easiest and the most cost-effective way to carry out a generational transfer is to do it in a limited liability company. Ask help from your bookkeeper and legal experts.

Start familiarising and training you successor early enough. You can agree that you will work together for a while so that the successor can get quick help in new situations. Transfer the responsibilities to your successor in a gradual manner.

When your successor no longer needs advice or assistance, you can conclude the generational transfer in the manner that you have agreed. You can now retire from the company. Only give advice to the successor if they ask for it. Remember that your successor (and not you) now has control over the company.

You should determine the fair market value of your company early enough using expert assistance. By determining the fair market value, you can estimate the tax burden you and your successor have to incur as a result of the generational transfer. The successor is also able to estimate the amount of external funding they require for the generational transfer.

There are several different ways of carrying out a generational transfer. You can sell your company or parts of it or give it as a gift to your successor. You can also carry out a gift-like sale, in which case the price paid by your successor for the company is lower than its fair market value.

Have discussions with experts so that you can determine the most suitable method, considering the overall situation. When determining the most suitable method, you can ask help from your bookkeeper, the Finnish Tax Administration, legal experts, your regional business development company and the ELY Centre.

Make sure that you get an adequate compensation for your company. Also make sure that you have paid enough entrepreneur pension contributions so that you can manage with your pension after the generational transfer.

The emotional factor is one of the main challenges in a generational transfer. It may be difficult for you to give up your company and your way of life. The generational transfer may also arouse strong feelings among your employees and customers.

It may be difficult for your employees and customers to adapt to the successor and its operating practices, which may differ from what you have used. If you are strongly identified with the company, a generational transfer may even prompt long-time customers to end their business relationships with your firm.

Transferring your expertise, tacit knowledge and networks to the successor requires a systematic and long-term approach. You and your successor may also have differing opinions and values, which may complicate the generational transfer. It is important to find a balance between them; the company should not change too much during a short period of time but neither should it remain in the past.

One challenge is to carry out the generational transfer so that the process will not interfere with the company’s business operations. Moreover, issues concerning taxation, financing and the distribution of estate also pose challenges.

The successor should also prepare for the generational transfer early enough. If the successor does not have any previous experience of the sector in which the company operates or entrepreneurship, they should receive training in them.

The successor should familiarise themselves with all aspects of the company's operations before the generational transfer. It is important for the successor to see themselves how the company operates and what are its business principles. The successor should also familiarise themselves with the practical aspects of the retiring owner's tasks and listen to the views of its long-time employees.

The successor should find out early enough where they can get funding for the generational transfer. Funding can be sought from banks and Finnvera. The successor should also find out whether they are eligible for a start-up grant or for start-up funding for young farmers.

In a generational transfer, the successor often steps into big boots. The successor must be determined and self-confident and believe in their own abilities. At the same time, they must also value the work carried out by the retiring owner.