Owning a small business is an emotional experience. The blood, sweat and tears you put into keeping your company afloat over an entire career create a bond that can make letting go difficult. If you are looking to pass on the business to the next generation, there are added emotions: Is my child ready to run this on their own? Have I properly prepared them for ownership?
Below are six tips you can use to get started and work toward a smooth, successful transfer of ownership.
1. Start planning early
Your children may seem “too young” to be small business owners today, but as a parent you likely know better than anyone that time flies fast. If you start building the foundation of a succession plan early, you will have a higher chance of success. Consider beginning the process at least 10 years out from when you think the transfer should occur.
2. Get it in writing
Pricewaterhouse Cooper’s 2017 Family Business Survey determined only 23 percent of their family business clients have a robust, documented succession plan in place. Yet 52 percent of those surveyed also said they intend to pass the business on to the next generation to own and run the business. A successful business has a written plan in place to guide it into the future. This should be applied to planning for future ownership as well.
3. Open communication
One of the reasons businesses fail to successfully transfer ownership is because families are not honest with one another. Parents may try to hide some of the financial troubles from years past or shield their children from the hardships they have endured – a natural instinct for any parent – as a business owner. Children may be afraid to communicate exactly what they do or don’t want out of ownership for fear of upsetting their parents.
This has the potential to create more problems in the future than the ones you are trying to avoid today. Lay all the cards on the table and be sure all parties know what they are getting into.
4. Discuss the goals of both parties
There are a lot of mechanics involved when it comes time to transition ownership, but don’t forget to discuss what both parties are hoping to achieve at the end of the process. That is just as important as how to handle taxes, estate planning and more.
5. Kids, take care of your parents
If the parents will need income from the business as part of their retirement and estate planning, bring those conversations into the planning and determine what the business can withstand. Consider working with an estate planning professional to help build this into the succession plan properly.
6. Talk to an expert
Transferring ownership is complicated, and because there are so many emotions tied to the process it can be exhausting for all parties. Having a business planning expert who can mediate between parties and take a pragmatic look at the business and its needs will increase your chance for a positive long-term outcome.
If you haven’t begun the process yet, consider looking at your options now and laying the framework for a successful transition for you, your children’s and your business’s future.