An entrepreneur’s happiness and fulfillment can come from seeing their children take over the family business reins and continue to build their legacy. Many businesses have been successfully handed down from one generation to the next.

However, passing your business down to the next generation can have challenges that the family will need to navigate through in order for the business to succeed. How should owners transfer their business to their children?

There are crucial and strategic decisions that can make or break your operation, including operational hours, staffing, salary, and business continuity plans.  

Inducting Your Children Into the Business

If your children show an interest in joining the family business, the best way to bring them on board is by having them participate at the bottom of the workforce and work their way up the corporate ladder. This will ensure that they get exposed to all of the processes while watching you run your business. Additionally, other staff will most likely stay motivated, seeing your children start from the bottom as they did.

Determining What Your Children Want

Don’t assume that your children want to succeed you in your business. As children grow into young adults, they may discover different things that spark their interest. Your family business may seem like a stumbling block, hindering them from following their own path in life. It is important to get feedback from your children on what their goals and ambitions are.  

Formalizing the Transition 

Transitioning the business from parents to children should be made official with a legal transfer document. An attorney should draw up a contract detailing the transition process, roles and expectations of the incoming and outgoing management. This will help safeguard the business and its stakeholders. It will also help your children to learn the value of the business and they will be more likely to manage it responsibly.

Reclaiming Your Business 

Your children may lack the business acumen that is necessary to run a successful operation and/or the commitment and patience that is required. The legal transfer document should have language indicating that the business can be reverted back to the parents in order to turn it around to a profitable operation. Parents taking back the business from underperforming children can be beneficial to the entire family. Your children can continue to work with you and learn how to run a business. They will also benefit financially in the years to come.    

Selling Your Family Business

You may decide that selling your business is the best option. You can have your children help out as you run the business while seeking a buyer who is willing to pay a fair market price and will continue the great work you started. Selling your business may provide a good retirement for you and provide for your children through trusts.  

Making the Transition Successful

Many factors come into play for a successful transition of passing down a business to your children. Willingness, commitment and readiness of the children are the most critical factors to determine the success or failure of the business when they take it over from the parents.

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