You are here

Passing On Your Drycleaning Plant (Conclusion)

Greatest problems in intergenerational transfers are personal, not legal in nature

LLOYDMINSTER, Alberta — Several months ago, the Wall Street Journal reported that the next several years will bring about the largest intergenerational transfer of going concern businesses in history. The entrepreneurial baby boomers wish to phase out, with more than two-thirds wanting their business to remain within the family. However, some express legitimate concerns. Many business owners, including those who own and operate drycleaning plants, have developed a profitable enterprise only to see it frittered away.

Not all children share their parents’ commitment and expertise. Many lack experience and day-to-day management skills. Some may not want to be in the drycleaning business. Others may have the desire but lack management ability. Is the Boy Wonder really the Boy Blunder?

The problem becomes how to find the best way to pass the drycleaning plant to one’s progeny with the minimum of sibling rivalry. How does one properly structure an interfamily company transfer that satisfies everybody? Can one pass the business to one family member yet bypass the others?


Interfamily squabbles are not always restricted to the siblings. Spouses get into the fray, too. Accordingly, you must provide for contingencies.

Once the plant is sold, no matter to whom, it is sold. If your children own the shares, they can trade them in, sell them, pledge them, give them away, or lose them in a divorce to a spouse who can do any or all of these things.

That the shareholders are family members does not lessen their legal ownership. They have all the same rights and privileges accorded an outsider. Thus, the buy-sell, and any subsequent shareholder agreement, must clearly spell out who can or cannot do what, when, and how. Because of diminished negotiating strength and sentimental attachment, it is easier to be placed into an unfavorable legal and tax position with an interfamily transfer than an arm’s-length sale. With sufficient pre-planning, most of these problems can be substantially reduced.


To determine a credible market value estimate, it is wise to obtain a professional business appraisal. This will establish the foundation for equitable interfamily negotiation and ensure that the transfer from parents to the family will be fair to all. And, it will be far easier to convince the Internal Revenue Service that your value is fair and not just guesswork.

The most difficult area is the valuation of goodwill. Few buyers recognize its existence, or if they do, assign little monetary value. However, it is easier for a parent to convince the family that there is substantial goodwill and that it should be paid for. Who tells a feisty parent that the only value is the real estate (if owned) and the equipment, that the years of building the business are for naught?

Except where there is the untimely death of a parent, interfamily transfers are structured at a time when everybody loves everybody else. (For that matter, so are partnership agreements.) Unfortunately, children do not always honor their parents’ wishes, are not always sensible, concerned, hard workers, thrifty or as good at management. They fight, lose interest, have marital problems, divorce, and sometimes die prematurely. Accordingly, the watch words are caveat venditor—Let the seller beware.


The greatest problems in interfamily transfers are not legal in nature but personal. The first step is to ensure that the parents’ wishes are made known to the family, and can be met with the constraints either overcome or reduced.

It’s great to be hopeful and a bit blind when dealing with one’s own, but realism and practicality are often more crucial. It is important to bear in mind that the family or a family member must want to be in the drycleaning business, can comply with parental objectives and, once in ownership, be able to operate and maintain it. Often it is the non-financial considerations that prescribe the criteria.

Finally, plan well ahead. Ensure that all agreements are legal in nature, drawn by the best of lawyers, aided by the best of tax accountants. Do not let yourself become involved in a drawn-out family fight because someone feels short-changed, or be clobbered by the IRS because the transition was not handled properly.

Miss Part 1? You can read it HERE

19060 55751 keys web

(Image licensed by Ingram Publishing)

Have a question or comment? E-mail our editor Dave Davis at [email protected].