SALE TO FAMILY – Business Destinations: The Most Overlooked Aspect of Business Planning

The Vaughn Law FirmUncategorized0 Comments

  • Sale to Family

If you have involved family members (typically your children) in your business, or if they clearly can become involved, consider a transition of ownership to them.  To avoid conflict, here are some recommendations.

Treat it as a legitimate business sale as you would to somebody else or to a competitor.  Undergo the due diligence period.  Your family members likely already know how the business operates, so the exchange of information may not be quite as involved as other types of transactions.  Still, you do not want a caring supportive relationship to be soured by a later discovery of such things as withdrawals of funds, accounting lapses, asset transfers, recent debts, or anything else that a buyer would want to know.  Execute the standard agreements with clear provisions.  Once the children are the owners of the business, such issues suddenly rise to a paramount level of importance.  Tensions from ambiguity, combined with perhaps the parent’s ongoing involvement in the business to some extent, create possible conflict that may result in litigation even in a loving, caring family.

Also, address the personality issues. Parents generally are very personally invested in both their business and their children.  If parents are turning the business over to children, or perhaps grandchildren, that personal investment does not suddenly evaporate. The family needs to decide how that transition is going to occur, how the younger generation is going to take over the business, and often more importantly, how the older generation is going to yield that business to the younger generation without continuing to manage on an ongoing basis.  The dynamic is one of leadership and authority.  Employees struggle with who they should listen to and who they should not. Confusion in these matters disrupts the business and creates animosity.

Equally importantly, the family must make sure that the business does not become a social setting for the older generation. It is tempting for a retired parent to come to the place where they have been comfortable for years, where they have cared about people, and where they have relationships.  Unfortunately, it detracts from this business that needs to be done to make the company successful.

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