Many business owners dream is to pass down a successful business to their children. If your children have experience in your business and are qualified to run it, then this might be your best option. However, with a decision this important, you want to make sure that it is the right decision.
Transitioning a business to the next generation does have risks. It is estimated that only about 30% of family businesses successfully make it to a second generation. We will discuss some of the factors to consider in making the decision.
Personal Considerations when deciding to sell your business to the next generation
Are your children excited about the idea of running the company, or would they be taking it over just to make you happy? These are discussions you want to have openly.
Are they currently running the business or a big part of the business? If so, then you have a greater comfort level. If not, then it’s best to have them work at the company and groom them over time to find out if they have the right skills and temperament to run the business.
Also, do they enjoy managing employees and being the decision-maker for the business? Do they have the respect of your staff? If not, then you want to find out why and what can be done so that they can earn respect from the staff. You want to have open conversations about rectifying any shortcomings that they might have. Once this is done it’s best to see if the changes that are made have made a difference in the staff’s view of them and in your children’s abilities. To keep your team motivated and onboard, they will need to see that your children are bring something of value to the business.
If your progeny are not suited to managing the staff and you are ready to retire, then you may want to consider enlisting the services of an experienced Business Broker. Most buyers want to keep the staff intact and would be happy to have your sons and/or daughters stay with the company in roles that they are suited for. We have seen plenty of transactions where the children are given long-term employment contracts.
Pros & Cons To Having A Family Member Take Over Your Business
There are positives and negatives to exiting your business and having your son or daughter succeed you. From family drama to workplace drama there are many factors to consider. To know if this would be a good course of action, ask someone who knows both you and your family whether they think it is a wise decision.
Positives OF Passing Your Business On To Your Kids
The clear benefit to giving your business to your kids is keeping it in your family. You can avoid certain taxes that would normally happen when you sell your business. There is also the fun benefit of being able to go back to work if you
Negatives Of Passing Your Business On To Your Children
They could fail. Your business could fail. There is a large amount of pressure in passing your business on to your children and if they fail it could hurt your relationship. There is also a risk that your employees will not get along with them.
Financial Considerations for selling your business to your children
If you are well off and have a profitable business, you may consider giving the company to the next generation. It’s essential to plan financially to make sure that you will have enough funds for retirement. If you are not sure that your resources are sufficient, then you may want to consider your options.
For example, you could sell the business and have your children work there if they are happy working at the company and are productive. They could retain some equity in the business, and if you have the right buyer that can invest in the business, then maybe it would work out best for all involved. The value of your children’s share can grow, and their skills can grow as they get more experience and learn from a seasoned buyer.
An experienced Business Broker can provide you with a potential selling price so you can decide if the proceeds will be enough to retire and whether you can give some of the business to your children who are actively involved in the business. You may also consider giving them a cash bonus when the business is sold if they helped you to get the companies value where it is today. With this extra money, it can free them up to decide whether they genuinely want to work at the company or they would like to investigate some other career options.
Many potential buyers want to acquire the whole company, but if the company is profitable enough, there are other types of potential buyers that may be interested in purchasing a majority share and having a minority shareholder still working in the company that can help them to learn and grow the business.
Discuss your options with Synergy Business Brokers
We have over 16 years of experience selling businesses, so we have practically seen it all. In some cases, business owners decided to sell their business to an outside acquirer, and their family members have continued to work at the company after their parent has retired for a long time. In many cases, their children enjoy working for the new owner because the new owner can often offer more opportunities with greater capital to invest and more resources from other related companies that they own. This allows the sons or daughter to take on new roles with new product lines or services that they may not have had access to previously.
They can also learn new skills from different approaches and business models. In some cases, the family dynamics may have been holding back the new generation from their potential, and sometimes the relationship can be better when you are no longer working with your children.
Confidential Marketing Program
If you do decide to look for the right buyer to take over your family business we provide a confidential consultation to understand your needs and give you an estimate of a potential selling price so that you can decide whether or not you want to move forward. There is no fee for our services until your company is sold.
We specialize in selling companies that have annual net incomes of $200,000 to $5 Million in distribution, construction, manufacturing, technology, healthcare, services, engineering, education, and transportation. To start a private conversation, please fill out our contact form.