A lot of work and passion goes into creating a successful business. So much so, that when the owner begins to contemplate retirement, they often find themselves faced with a difficult decision: to sell the business, or to pass it on to the next generation via family inheritance. Either option presents its own variety of logistical nightmares.
Should a business owner find themselves wondering “how do I sell my business?”, there are many steps that need to be taken in order to even determine the feasibility of such. The first step is valuing your business. You need to know how much it is worth so you can have an idea of how much someone might be willing to pay to take it over. After you have completed valuing your business, taking into account what to do with your stock options should you own any, the final dollar amount you arrive at is the crux around which all comparisons to the prospect of family inheritance must turn. Now that you have completed valuing your business and you know how much total money you might end up with after a successful sale, (minus taxes of course), it’s time to transfer your thinking from “how do I sell my business” to “should I sell my business or pass it on through family inheritance?”
Passing the business on to the next generation poses it’s own set of challenges. First of all, your potential heir or heirs must actually want to take over and run the business. It is, after all, a lot of work, and if the next head of the company doesn’t share your passion and drive to make it great, bad things can happen. Should an appropriate heir be present who wants to take over the company, the next step is to figure out how to effectively transfer ownership so that the smallest amount of money possible is lost to taxes. You might say it’s time to change our thinking once again from “how do I sell my business?” to “how to I pass along my business through family inheritance?”
There are several ways to pass ownership of your company on to the next generation. Bequeathing stock, selling stock, redeeming stock, private annuities and buy/sell agreements are just a few methods than can be used to pass along your business through family inheritance. Each offers its own pros and cons, and you must use careful judgment when choosing which method you will employ, as it will vary by circumstance.
Once you have chosen the best method possible, all that is left is for you to compare the final outcomes of each option. Compare how much money would be passed along, when all is said and done, from a sale versus how much ownership of the company and the ensuing tax burden would be passed along from employing family inheritance. Get the family together and make a joint decision about what is best, and when you have made up your mind, put the plan into action.