A Must-Read Article on Having Children Take Over the Family Business
If you’re like most business owners, you look forward to the day that you can hand over the keys to your children.
But there are some issues to consider, says Josh Patrick, the owner of a wealth management business, Stage 2 Planning Partners, that focuses on the strategic issues faced by the owners of private businesses. In a recent Divestopedia article, “Kids Take Over the Business? 8 Things to Consider,” Patrick examines what it takes to make a family business transition successful
1. Rules for Joining the Business.
Letting a child to take over a business right after finishing his or her education could be a huge mistake, Patrick says. After all, how can a parent be sure that a child can handle operating the business without some proven experience under his or her belt? Make sure your child pass the test any other employee would have to pass to join the company. Establish some rules for children to take over the business.
2. No Fake Jobs
Don’t create a job for your children. Senior decision-making roles should be earned and not handed out as a birthright. The end result of this approach could create a range of diverse problems.
3. Pay Should be Fair
Quite often when a child takes over a business, his or her pay is either far too high or far too low. Other employees will notice how your children are being treated. “Pay needs to be on your company scale,” Patrick says. “No more, no less.”
4. The Kids Must Grow the Business
Business growth must always be kept in mind. When having your children take over a business, it is essential that they have the ability to not just maintain the business but grow it as well. If they can’t handle the job then, as Patrick notes, you are not doing them any favors. Perhaps it is time to sell.
5. Stock Ownership
Only children involved in the business should own stock, Patrick recommends. Otherwise, some children will feel invested in the business and others will not and may way to cash out. This issue can become a significant problem once you, as the business owner, either retire or pass away.
6. Sell, Don’t Give Your Business Away
Patrick recommends that a business should only be sold to children and not given outright. A child who simply given a business hasn’t earned it and may not perceive its value. Additionally, if a child or children buy the business, estate planning becomes much more straightforward.
7. Let Go
Once you have sold their business to your child, “let go.” At some point, you will have to retire. Regardless of the outcome, you’ll ultimately have to step back and let your children take charge. It’ll be easier to let go if you transition into something else that interests you.
8. Your Kids Will Change Things.
Your children will change how things are done. This fact is simply unavoidable and should be embraced.
Working with an experienced business broker is a great way to ensure that selling a business to your child or children is a successful venture. The experience that a business broker can bring to this kind of business transfer is quite invaluable.
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