Does A Business Transfer To Children Make Sense?

When the ownership of a business is transferred by its owner, who is often also the founder, several pitfalls need to be avoided to make the transfer successful.

Approximately fifty percent of all business owners will sell their business in the next fifteen years, as recent statistics tell us. Only twenty-five percent of the business owners know at this time how they will exit. As a matter of fact, one SBA study indicates that eighty percent of all businesses can not be sold due to a variety of reasons.

Thus, it comes with little surprise that a business owner will either turn to his children, or hire a qualified professional to facility a transferal upon retirement.

Typically, eighty percent of an entrepreneur’s net worth is tied up in the business, and thus, transferring the business requires the securing of sufficient funds for the founder’s life in retirement. And whereas most often the first reaction is to divide the business equally among the children, this is by no means the most “secure” way to ensure continued funds for the owner.

From an economic point of view, the owner has to evaluate who is truly the most talented child to  manage the business properly and to ensure continued prosperity.

Over the years, qualified business brokers such as ANA have helped many business owners to develop a successful exit strategy, either by transferring the business to children or by transferring the business to a new (outside) owner. It is a smart move on the business owner’s part, to start evaluating his/her options as early as possible, in particular, as they pertain to business valuation and transfer confidentiality.

Written by Achim Neumann