If you are a Nashville business owner trying to decide whether to sell your business or leave it to your adult children, keep reading. There are many things to consider, and making any decision without a long pause for thought can result in hurt feelings, incompetent leadership, and family conflicts. All of these things are bad for business.
First things first. When you know it is time to bequeath or sell your business, you have to be prepared to let go. M&A experts at Nashville’s Beacon Exit explain that you must allow the next generation – or a complete stranger – to take over. That is not to say you have to walk away immediately or completely, and there is nothing wrong with making yourself available as a mentor for a set time. However, be prepared to walk away and watch from a distance, even if the company you have built from the ground up experiences growing pains once the papers are signed.
Hiring an heir
Another important step is to ensure that your children are fully aware of the rules. And there must be rules. Only about one-third of businesses will succeed into the next generation. If you want your heirs to be successful, you cannot let them walk into the office and take over without guidelines in place. One of these should relate to previous work experience. Although your adult children have likely grown up in your business, make a rule that they must work for another company long enough to experience the real corporate world. Think of it as a proving ground where your children can show their competence as well as their ability to overcome obstacles.
If you choose to have your children come and work for your company before deciding whether or not to sell your business, give them an actual job. As Nashville continues to grow, no business can afford to pay an extraneous employee. In other words, do not simply make up a title, and only offer your children an opportunity to compete for an established or truly needed position. Your children should go through the interview process just like other candidates. They should be hired only if they are qualified based on their past experience, education, and successes.
Once they have impressed your executive team, you may offer them a compensation package. For their benefit and that of your business, this should be competitive based on all of the above. Not because of their last name.
Sell or bequeath
As word gets out that you are looking to retire, you may be approached by investors looking to buy a business in Nashville. While it is wise to be open to the possibility of outsiders, if your children have shown interest, you can put them at the front of the line.
Your adult children may expect a free ride. However, ultimately, it makes the most sense to sell your business to the kids instead of bequeathing it outright. Nashville law does not prevent gifting, but there are some tax advantages to a cash exchange when it is time to transfer the family business. Your child or children should have the funds to back up their desire to take over. Further, giving your business to one child can create upheaval when they have siblings that feel slighted by the move. A cash sale allows you to sell your business and your child to buy a business while avoiding hurt feelings.
There is also the issue of stock. You might wish to leave shares to children who do not participate in its operation. Experience suggests, however, that this is a bad idea. More often than not, an uninvolved child wants to sell their stock and walk away with the cash. This can lead to feelings of resentment from any heirs that have done their time with the company.
A change on the horizon
Finally, whether you sell your business to a Nashville investor or to an interested child, you must understand that where they start today is not where you were in the beginning. You started your business from scratch and refined your processes over time. They have a significant head start and are leaps and bounds ahead of you in the early days. Because of this, they might see areas where change is needed. Accept this and know that they will have their own set of obstacles to overcome.
The decision to say goodbye to all that you have worked for is difficult. And although you might be tempted to give the business to your firstborn, this rarely works out unless they have worked just as hard as you. In business, there are no free rides. Your children must pay their dues, or they will steer your family company straight to its end.
Contact Nashville’s Beacon Exit Advisors today if you are ready to sell your business to an outside investor or begin the process of passing the torch onto the next generation.