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Should I Pass My Company to MY Child/Children?

Business Sales and M&A Specialists

Building A Legacy

Many business owners nearing retirement want to pass their business to their children. You have spent blood, sweat, tears and probably years to build your company with hope that you are building a legacy to pass on to the next generation.
Your child/children may want your company, but are they prepared to run it and keep the success that you have built? Have they been in an important prominent role within the company? The most successful predecessor is the person or persons that have close knowledge of the company and the intimate running of your business.
One of the most important rules of passing on your business to your children is:

“Don’t Force Them to Take Over”.

If it is not their passion or aptitude, the chances of continuing the business success is very unlikely. As a Business Broker with Link Business, I have heard this story many times. “I passed my business to my kids and then had to take back over when they ran it to the ground.” Passing your business to an unprepared or reluctant child will only cause animosity within your family. You are all better off to sell to an outside source and continue to build your legacy with the proceeds of the sale.

When Your Children or Others Are Your Buyer

The best success of handing down or transferring ownership of your business that you built as a legacy for your family is to choose the predecessor wisely. What if you have many family members working in the company, how do you decide who will proceed you in position at the helm? It is not recommended to pass your business on based on seniority or birth order but choose the person who knows the business and has the skill level to continue the growth you have set. This may or may not be a child, it could possibly be a grandchild, other family member, or employee who has shown great aptitude and shared ideas for the future of the business.
At this point, you may wish to involve your family. Be honest and upfront from the beginning. Give everyone in the family an opportunity to air their views and concerns in order to make the transaction as transparent as possible. You want your predecessor to start out with the full support of others within the company, not animosity.
Now that you decided on the person to take over and buy the business, you can retire or move on to your next opportunity. Now What? First start off with working with a third party to determine the value of the company. According to Lisa Riley, Designated Broker with LINK Business-Phoenix, “Most business owners do not know what their business is worth…many overestimating its value based on blood, sweat, tears and years!” It is in the best interest of your company and the successfulness of the business going forward, that your buyer, be it family or third party, not pay more than your company is worth. If the business cannot afford to pay for the debt burden and continue to prosper, it is not good for all parties. By getting a third party involved, it takes the personal feelings out and makes the transaction a business transaction. It is said to “Spend a nickel to get a hundred dollars”. Spend the money to hire someone to represent you in the transaction, be it a Business Broker or Business Appraiser. By utilizing a good Business Broker such as myself, I will be by your side through the whole transaction from the beginning of finding a value to the end at escrow and even through the transition of ownership. With more than 15 years’ experience with business transactions, I can help make Selling Your Business as smooth as possible.

There Will Be Challenges

There will always be challenges and minefields along the way. Prepare for these in advance by being honest and upfront. Write out a business plan or plan of attack as part of the Buy / Sale Agreement. How much will you, the previous owner, be involved? Where will the company go and how will it get there? Spell out expectations for both parties and be flexible when the business is changing, because it will change.
Having a third party, family member or even a work associate buy your business can be difficult for both parties. Knowing to expect adversity in advance is always helpful. Know that if you start out with a good open relationship that is what will be reflective going forward. If you have an estranged relationship to start, it probably isn’t going to get any better in the future.

Why Utilize A Business Broker

Having a third party is imperative in order to have the transaction be a business deal and not a family squabble. The principal value of a Business Broker is to act as a guide and buffer between the buyer and the seller. As your Broker, I can say certain things to a buyer, be it one of your family members or a stranger, and to You in order to have a productive discussion. With over 25 years of management and customer communication experience, I bring my A-game to make sure that each issue is addressed in a timely and thorough manner. I will relay what has to happen to have the deal completed and steer compromises on both sides.
There are many options to consider when you are deciding if ‘I Should Pass my Company to My Child/Children’. Most importantly, keep in mind what is important to you and to the success of your company. Let’s explore your options and map out a plan!
Contact us now for a Complimentary Analysis on Your Business at (480) 686-8062,