Business owners can spend decades building the value of their business with the intention of one day transitioning that business to a family member. There are a number of key considerations to evaluate when planning the sale of your business to the next generation.
First, you can never start planning too early. There are many reasons to consider preparing a succession plan years in advance. Depending on the expectations of the business owner, a five or ten-year outlook can allow for gift planning, a sale of the business over time, and other structures for transitioning the business in a way that provides flexibility to everyone involved. In many cases, the potential buyer does not have access to the total capital needed to purchase the business, especially on short notice. A succession plan is also important to have in place in the event of a life-changing event such as death, disability or retirement of the business owner. Business succession plans can provide structure and predictability for a business and its employees in a time of uncertainty.
In addition to the structure and planning components, the benefit of advanced planning is that it allows the business owner to properly train their successor and to get the management team on board with the next generation of leadership. A successful transition is dependent upon a key understanding of the unique relationship questions that exist when transitioning the business to a family member, such as:
- Who is the ideal member of the family to purchase the business?
- Is your son, daughter, or another family member interested in buying the business at all?
- Are the non-family upper management employees on board with the leadership change?
- Will you stay on in a consulting or employment role after the sale of the business?
We always recommend addressing these questions prior to the sale of your business.
If it has always been your plan to transition your company to the next generation, then it helps to make sure that all parties, including your intended successor, are on board with your plan and understand it. The goal in the sale of your business to a family member is to ensure the smoothest transition possible while at the same time receiving a fair price for the years of work that you put into the business. Having a well thought out plan in place years in advance is key to making that goal a reality.
If you have questions about the transition or succession of your business to a family member, or any other questions regarding buying or selling a business, please contact Jake Dunlop or any members of the Rhoades McKee M&A Team.More Publications