5 Tough Questions to Ask if You Plan to Pass Your Business on to Your Child
By Bigg Success Staff
Bigg Success in Business
We don’t see it as often as we used to, but do you remember when business names included “and son”? As in Sanford & Son?
Businesses are illiquid assets. Before you get into a business, you should know how you’re getting out of it.
You need an exit plan.
One strategy is to pass it on to your children. You may want to keep the business “in the family.” To have the legacy carried on. There are five questions you should ask yourself if this is your plan:
Is one (or more) of your children interested?
This seems so obvious, but it’s amazing how many times a parent has a dream which isn’t shared by any of his or her children. You want the best for your kids. That means letting them live the life of their dreams, not the life of yours. This isn’t easy, but an open and honest conversation is called for to make sure everyone is on the same page.
Is your child qualified?
It’s hard to be objective about your own children. Okay, it’s impossible. You may want to elicit an outsider’s opinion. There are few things more frustrating to both a parent and a child than taking on a task that shouldn’t be taken on. There may be some deficiencies (that’s the reason for the next question), but you need to make sure the basic talents are there.
How will you train your child?
In answering the previous question, you likely uncovered some shortcomings. If these are things that can be taught, develop a program to get your heir up to speed. How did you learn the business? Chances are that’s the best way for your child to learn it as well. It probably means working from the ground up.
How will you determine a price?
This may or may not be an issue. However, if one of your children is going to be involved in the business and the others aren’t, it surely will be. You’ll want to discuss this with your CPA. You should also consider having the business valued by a certified valuation specialist. Here are two links you may find useful for this:
Find a certified valuation analyst
Find a certified business appraiser
How will your child pay for it?
Assuming that you don’t want to give your child your business, you’ll have to figure out how you will cash out. This may be your most significant retirement asset. Can the business be financed with traditional capital sources, like a bank? Or will you need to offer financing? If that’s the case, there’s another list of questions you’ll want to think about, but that’s beyond the scope of this article.
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(Image from Sanford and Son Wikipedia page)