Succession planning for family businesses is important if your children aren't interested in taking over. Use these strategies to plan ahead.
Many small business owners dream about the day when they can add “and daughter” or “and son” to the name of their company. Of course, sometimes reality sets in, and that’s not possible because their children might not want the business.
When that happens, a family business owner has to consider other exit strategies. That could mean selling the business to another small player in the field or to an employee, selling assets to a much larger company, or even eventually winding the business down.
Deciding what’s right for you isn’t easy, but it’s much better than taking the “I’ll die someday and someone else can figure it out” approach, or assuming a solution will present itself before you either no longer want to work or can’t work.
Understand your options
The first thing to consider is your own financial situation. Did you factor in cash from selling your company as part of your retirement funding? Or have you planned for retirement without expecting a cash influx because you had hoped the next generation would take over?
After you figure out what you hope to get out of exiting your business, it’s then important to determine its worth. In most cases, that involves finding an experienced broker — someone who has sold companies like yours.
The one exception to that might be if you want to sell the company to a current employee and plan to finance at least part of the deal yourself. In that case, you can work with your employee on a price and payment plan that are reasonable based on the cash flow of the business.
What do you want?
My family owns a scaffolding business that I worked at for four years. There’s no specific succession plan that I’m aware of, and I have no interest in operating it—nor does my brother or cousin (the entire next generation).
If someday I’m charged with making decisions about how to dispose of the company, one of my concerns will be the employees—my former co-workers. I’d want to sell to someone intent on running the company as an ongoing concern, not a bigger player in the space who would only want to take over customer lists and keep a handful of people.
Selling to a company or individual that wants to operate the business might not maximize our returns. In fact, a deal like that would probably have to be paid out over time, and would carry more risk than just selling to a big conglomerate.
There’s no right answer here. If maximizing your return is the most important thing to you, it’s your business and you earned that right. It’s important, however, that you know what you want so you can try to make it happen.
Don’t act out of emotion
Your child not wanting to follow in your footsteps can be crushing. In some cases, that can lead to a parent not being understanding and using guilt to force a child onto a path the child does not want.
It’s reasonable to have a conversation where you show your child what’s being given up. If the lack of interest remains after that, move on, and support whatever alternative career choice your child makes.
No matter what you choose to do with your company, try to approach it rationally. Think “What do I want to get out of this, and is that realistic?” Let those principles guide you, and the end result should be a happier one.
Readers should consult their own attorneys or other tax advisors regarding any financial or tax strategies mentioned in this article. These materials are for informational purposes only and do not necessarily reflect the views or endorsement of Santander Bank.
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