In a Divestopedia article entitled “Kids Take Over the Business? 8 Things to Consider,” author Josh Patrick examines what every business owner should know about having their children take over their business. He points out that there are no modern and accurate numbers on what percentage of businesses will be taken over by the owners’ children, but the number is substantial. Let’s look at Patrick’s eight considerations.
1. It Could Be a Mistake
Patrick emphasizes that allowing children to take over a business right after finishing their education could be a huge mistake. After all, how can parents be sure adult children can handle operating a business without some proven experience under their belt?
2. Responsibility Should Be Earned
Point number two is that businesses frequently create jobs for their owners’ children. These created jobs, however, aren’t exactly real jobs, regardless of their responsibilities. Senior decision-making roles should be earned and not handed out as a birthright. The end result of this approach could create a multitude of problems.
3. Fair Pay
The third point Patrick addresses is that pay should be competitive and fair when having children take over a business. Quite often, the pay is either far too high or far too low. This factor in and of itself is likely to lead to more problems.
4. Is Business Growth Possible?
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 highlights, you are not doing them any favors. Perhaps it is time to sell.
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5. Owning Stock
Another issue Patrick covers is whether or not children should own stock. If there are several children involved, then he feels it is important that all children own stock. Otherwise, some children will feel invested in the business and others will not. This issue can become a significant problem once you, as the business owner, either retire or pass away.
6. Gift or Sale?
In his sixth point, Patrick recommends that a business should only be sold to children and not given outright. If a child is simply given a business, then that business may not have any perceived value. Additionally, if a child or children buy the business, then estate planning becomes more straightforward.
7. Stepping Back
In point seven, Patrick astutely recommends that once a parent has sold their business to their child, the parent must “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.
8. So Long Status Quo
Finally, it is important to remember your children will change how things are done. This fact is unavoidable and should be embraced.
Working with an experienced merger and acquisition advisor is a great way to ensure that selling a business to your child or children is a successful venture. The experience an M&A advisor can bring to this kind of business transfer is invaluable.