Business Transition Strategies: Passing Your Company to a Family Member

Passing your company to a family member creates a legacy asset

Last week, we overviewed six ways that exiting business owners could transition out of their role. Over the next few weeks, we’ll take a more in-depth look at all of those strategies, starting with passing your company on to a family member. 

This option is tempting for many reasons. It allows you to remain involved, at least until you feel confident that your successor is prepared to bear the full weight of being a business owner. This strategy also creates a self-sustaining legacy asset that your family can pass down for generations. 

If this process appeals to you, here are three tips to keep in mind as you start to build your business transition strategy:

Establish Clear Expectations for Each New Owner

For business owners who have multiple children, passing their business on can be a stressful event, especially if there is any resentment, conflict, or disagreement over who is taking on which roles. Have conversations with each of the relevant parties, share your expectations, and play fair. 

For example, expecting your younger child to fall back in the hierarchy despite having put more time and energy into the business than your older child is asking for trouble. 

Remember that the goal of passing your company to a family member is to keep your business running for generations to come, and disregarding the interest and work of potential future owners in favor of age or gender hierarchies can negatively impact the chance of that coming to fruition. 

Employee, Manager, Owner

Your children (or other family member stepping in as new owners) need to experience every phase of participating in the family business before they take over. Start early by bringing them on as employees to learn about the day-in, day-out aspects of client or customer relations. This will also help them build empathy and understanding for their own future employees. 

Then, ask that they step into a managerial role. This allows you to spend as much time as necessary by their side, then slowly pulling out the scaffolding of support at a pace that ensures the new owner’s success. Finally, at which point they have demonstrated an appropriate competency level, your child can officially step in as the new owner. 

Be Open, Transparent, and Honest

With the years of experience you have under your belt, running your business can feel as familiar as breathing. Things that would stress you out, give you anxiety, or feel like a crisis when you were a new business owner are now handled deftly. Relationships with vendors, customers, and clients are well-established. You have the benefit of reputation and respect when it comes to managing employee issues. 

Unfortunately, your child won’t have the benefit of age and experience when they step in. 

Painting the concept of being a business owner with rosy skies isn’t going to be helpful, especially if the child is already concerned about their ability to take on the responsibility. It’s far more beneficial to be frank about situations that went wrong, hard decisions you had to make, and the number of times you sacrificed your personal enjoyment for your business. 

If your successor is more focused on proving themselves as capable as you are at running the company, they are less likely to ask you questions, seek your advice, or turn to you in tough times. We all want for our children to learn from our mistakes. They can’t do so if we aren’t willing to share those mistakes with them. Chances are, they’ll eventually figure it out on their own, but having your support is an invaluable asset to a burgeoning business owner. 

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