There are those few ambitious souls in the world who see starting their own business not just as a worthwhile risk but as the best possible form of employment for their personality and desires. For these people, starting a business from the ground up is a labor of love that they oftentimes work their entire lives on. When they reach retirement age though, a difficult question arises: should they sell their business or pass it on to their children?
Business succession to loved ones and selling to someone else are both great options for a business when it comes time for the owner to consider retirement, but both options do have their pros and cons. By talking about them in today's post, we hope to give you a better idea of what to consider when it comes time to make a decision about your own business.
Let's first talk about transferring ownership of a business to family members. This is a great decision if you have plans to turn your company into a family business or if your child or children have shown an interest in running the business. If you've never discussed succession though, your loved ones can run into problems down the road. They might not know how to run the business effectively, thus leading to financial failure. Your child or children may not even have an interest in running the business, leaving them in a particularly difficult position as well.
Instead of leaving a business to loved ones, there is always the option to sell to someone else. The interested buyer might have better business sense than your children or more interest in running a company, which is ideal if you want to maintain a stake in the company after retirement and want it to continue to succeed. Selling to someone else though means it will no longer be a family business. You will also need to draft a legally binding buy-sell agreement that will need to be in accordance with the law.
Still unsure of which decision you should make? That's okay because a lawyer with knowledge in estate planning and business law can be a useful resource for you. They can not only help you make the right decision about your company but they can also help you through every step of the process so that the transition is seamless and no headache to you.
Sources: Investopedia, "How To Create A Business Succession Plan," Mark P. Cussen, Accessed March 23, 2015
Citizens Bank, "Keep Your Business Around When You Aren't," Ginger Applegarth, Accessed March 23, 2015