Author Josh Patrick, Divestopedia, wrote an article entitled, “Kids Take Over The Business? 8 Things To Consider”. Here are the points he makes about what a business owner should know about having their children take over the family business.
Point #1: Children Should Not Take Over A Business Right After Finishing School
Having a child take over a business right after finishing their education may be a huge mistake. A child needs some proven experience under their belt before they can handle operating the business.
Point #2: Businesses Frequently Create Jobs For The Owners Children
These jobs are not real jobs. A child needs to earn a decision making role. This approach could create problems.
Point #3: Pay Should Be Competitive
When having children take over the business the pay should be competitive and fair. Often times the pay is too high. This factor is likely to lead to more problems.
Point #4: Keep Business Growth In Mind
It is vital that your children have the ability to grow the business. If they can’t handle the job, perhaps it’s time to sell the business.
Point #5: Should Children Own Stock
Patrick feels that all children should own stock if there are several children involved. If not, some children will feel in vested in the business and others will not. This can become a real problem once you retire.
Point #6: Sell The Business To Your Children
A business owner should sell the business to a child. You should never give a business to a child. A business given to a child may not have any perceived value. Furthermore, estate planning becomes more straightforward if a child buys the business.
Point #7: Parent Must “Let Go”
The parent much “let go” of the business once they have sold it to their child. At some point you will have to step back and let your child take charge.
Point #8: Your Children Will Change How Things Are Done
You need to consider that your children will change things. This action is unavoidable and you should embrace it.
Working with EBIT is a great way to ensure that selling the business to a child or children is successful. We have first-hand experience with this kind of business transfer.