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You
may believe that you are going to hand your business down to the next
generation. While this is an admirable goal and can be an optimal exit strategy,
there are several factors to consider.
First
of all, talk with your children or family members that you have in mind for
taking on this responsibility. Don't force it on them! This can be one of the
most critical mistakes you can make. If they are reluctant or do not show
enthusiasm, you will want to carefully consider this choice.
Also,
even if they really want to take over the business, are they qualified? Do they
have what it takes to make the critical decisions? Do not wait until you are
ready to exit the business to find out. Begin working closely with your chosen
replacement and observe them carefully.
If
you do decide to transfer the business internally, how will you get paid? This
is a frequent stumbling block. You may be willing to finance part of the
transaction, but you will most likely be looking for some cash at exit.
How
will this transfer be valued? Internal transfers are usually made at fair market
value - the price an unmotivated seller may receive from an unmotivated buyer.
This is usually lower than a price that you can get from a motivated third
party.
You
will need to weigh all of these factors and more as you consider a transfer
within your family.
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