How to transition a family business

As a family business owner you might want to pass on your business to the next generation or, at least, if your daughter or son is not interested, then to sell it for a handsome price to a willing, motivated and competent buyer.

The reality is it is not easy. Business succession difficulties run the gamut from personality differences, difficulty in convincing clients to stay with the new owner long enough to make the sale attractive, and solvency if there is a long term buy-sell agreement. Even where everything else works, the emotional effect of loosening control over a business that might have taken a lifetime or even generations to build can be traumatic.

Here are some issues to take into account. • You need to make the business work without you. Giving up control of a business does not just mean loosening the reins, it means you need to step back and see whether it could run on its own. This is a tough transition for someone who has invested years of hard work (the expression “blood, sweat and tears” comes to mind) and begins to believe he or she is indispensable. It is important not to be indispensable or the business might not, by definition, survive without you.

• Gradual transitioning might lessen the difficulty of handing over the reins and give the newly designed business a head start. Business giants like Steve Jobs as he was coming to the end, planned ahead considering who would handle the company best as successor. In families, stock transfers over time can gradually increase the participation of the new person in charge. If more than one child is involved, roles can be developed depending on the special skills of the parties. If one child is going to assume a dominant role, then consideration should be given to how this affects inheritance overall and the perceived fairness in the family so that no one sabotages the arrangement.

• Decide whether you want the business to continue after you die or to sell. Where others are involved in the business, there should be discussion in advance regarding buy-sell agreements that often are funded effectively by life insurance. If you have children, family, or current partners who can effectively run the business, involve them early. If your children and family are not interested, you may need, even if reluctantly, to look for another party to buy. • Decide whether your business is marketable without you.

Sometimes your business is primarily good will based on your unique skills and talents. It needs to have value or perceived value even if you are not around.

In “How Do Strategic CEO’s (and Owners) Work Themselves Out of a Job?” www.thiswayoutgroup.com, Kerri Salls made the point this way:

“When you want to sell your business, you want to command the highest possible value. For your business to merit the highest possible valuation, you must prove to the business appraiser and your prospective buyer that the value is in your business, not in you the owner…”

The skills involved in divesting yourself of your business are very different from the skills involved in startup. During startup, the business owner does anything necessary himself

or herself to make it work. Here are the skills to sell.

“…1. Create systems for everything. If you have systems, make sure they are documented.

2. Delegate everything. When your business can operate day-in and dayout without your handson oversight, you have a money making machine that will attract buyers. Identify the three things you absolutely love to do in your business and the three things only you can

do. Delegate the rest.

3. Develop a succession plan throughout the company… If there is a plan to move employees up through the ranks or at least, in smaller companies, to assume greater responsibility over time, it should be much easier to transition your company when the time comes.

4. Plan for scalability….” Scalability means the potential buyer sees increased revenues without vastly increased investment of time and money.

Some business owners when they have gone as far as they want to go with one business, then decide to start over with a new one. The term is “serial entrepreneur” and could, if done thoughtfully, be a way to keep yourself fresh.

Janet Colliton, Esq. is a Certified Elder Law Attorney and limits her practice, to elder law, retirement and estate planning, Medicaid, Medicare, life care, and special needs at 790 E.

Market St., Suite 250, West Chester, Pa., 19382, 610-4366674, colliton@collitonlaw.com. She is a member of the National Academy of Elder Law Attorneys and, with Jeffrey Jones, CSA, cofounder of Life Transition Services LLC, a service for families with longterm care needs. Tune in on Wednesdays at 4 p.m. to radio WCHE 1520, “50+ Planning Ahead,” with Janet Colliton, Colliton Elder Law Associates, and Phil McFadden, Home Instead Senior Care.