Artificial intelligence (“AI”) is transforming the business landscape at a remarkable pace. While much has been written about the opportunities AI can create, less attention has been given to the ways it can reduce the value of a small or family-owned business when it is poorly implemented (or simply ignored), weakly governed, or not aligned with changing market expectations.
Refinancing and Business Value
When AI contributes to a decline in business value, the consequences can be significant. For example, refinancing existing debt may become more difficult if lenders view the business as riskier, less predictable, or less capable of generating stable cash flow. A decline in value can also reduce the value of the shares held by owners. In the context of an estate, this may result in beneficiaries receiving less value than anticipated.
This issue is especially relevant for family-owned businesses that invest in AI tools without achieving meaningful financial returns. A failed AI initiative can consume capital without producing a corresponding improvement in earnings or enterprise value. As a result, this may affect not only financial performance, but also family harmony and long-term succession or estate planning objectives.
AI and Erosion of Competitiveness
For small and medium-sized enterprises or family-owned businesses, the competition is constant. To remain relevant within the local and regional community, the business must remain competitive. If business competitors adopt AI more effectively to improve their pricing, services, effectiveness, and efficiency, a business that falls behind may inevitably lose market share and pricing power. This will directly impact on the value of the business.
AI and Family Business Dynamics
In a family-owned businesses, AI can introduce tension between generations. The next generation may view AI as essential to future growth, while the founding generation may be more cautious (or resistant) about adopting new technologies. If these conflicting perspectives are not managed carefully, it can create friction, slow decision-making, and affect the long-term stability of the business, which may in turn influence the value of the shareholdings.
Estate Planning Considerations
An estate plan prepared years ago may no longer reflect the current value of a business. If AI has materially increased or decreased that value, a review of the entrepreneur’s estate plan may be necessary. For example, insurance coverage may no longer be aligned with current needs, and the equalization strategy among children (or other beneficiaries) may need to be revisited.
This raises an important question for advisors: should an entrepreneur’s AI strategy now form part of broader succession and estate planning discussions? Perhaps not today, but as AI continues to evolve, it may become increasingly important for advisors to consider how technology decisions affect both business value and long-term planning.
Conclusion
AI can affect business value when it leads to unsuccessful investment, operational challenges, or competitive decline. For owner-managed and family-owned businesses, these are not only technology issues but also valuation issues. If AI contributes to lower earnings, greater uncertainty, or higher perceived risk, the effects may include tighter lending terms, more difficulty refinancing debt, lower share value, and reduced wealth ultimately passing to beneficiaries through the estate.
For these reasons, AI should be considered not only as a source of opportunity, but also as a factor that may influence business succession, shareholder value, and estate planning outcomes.
Now, what if you are acting as executor of an estate and you manage a family-owned business that needs to complete the owner’s AI transition of the business, what is your responsibility?
