Family businesses are great, but there’s pressure to pass them along to the next generation. And there are many reasons that these businesses don’t get passed along. Even if you’re not planning to leave the family business for several years, it can be helpful to start thinking about your exit strategy now and look at the potential roadblocks. Money, opportunity, and options are the biggest reasons people don’t hand down a family business.
Sometimes, the biggest obstacle in passing a business on to the next generation is money. The current owners may want or need the full proceeds from selling the business. And the next generation isn’t always in a position to pay that much money. If the next generation has to take on a loan to buy the business, they may decide that’s not the best option. Additionally, some people may not want to charge their family full price for the business, but their financial situation puts them in a position to need the full price. So, they may choose to sell the business to someone else who can pay that much or who the current owners are willing to charge that much.
It could also be a question of the current owners not being sure how best to pass along their business to the next generation regarding taxes or legal red tape. In this instance, it’s best to get advice from accountants or lawyers who specialize in exit planning or estate planning. These professionals can ensure that both the current and future owners get the best deal possible.
There are more jobs today than 20 years ago, and that trend is likely to continue. These new jobs are another potential reason that the next generation might not want the family business. They might have greater opportunities in a different field or job elsewhere. It could also be that the next generation doesn’t want to be part of the family business because of the dynamics involved.
It’s also possible that the family business won’t offer much room for advancement for whoever takes it over. If the company needs some help in running more efficiently, it could be a lot of work and time before whoever takes it over could expect to see some growth. That may not compare favorably to a job somewhere else that could provide growth more quickly.
It’s also possible that the next generation might not be ready to take over when the current generation is ready to move on. The next generation may still be learning the ropes, building up experience, or living somewhere else and not prepared to move back to where the family business is. Many factors could make the next generation unable to take on the family business, even if they want to.
Having too many options can also be a problem for passing on the family business. It could be that there are several good options in the next generation for the next owner of the family business. If there are multiple good options, how is the current generation supposed to choose? It could also be that none of the next generation really stands out as a good candidate, which can also make choosing a problem.
Having multiple candidates could also cause problems within the family. Even if there is only one good person to take over the family business, others may feel like they should have gotten the company instead. Sometimes, the family drama isn’t worth passing on the family business, and it’s easier to sell it when the current generation is ready to retire.
There are many reasons that the current generation may not pass the family business onto the next generation. If you’re the owner of a family business, even if you’re not planning to retire for several more years, it’s a good idea to begin thinking about your exit strategy now. The earlier you start thinking about it, the more time you have to make it happen and avoid some of the reasons discussed above.
Looking to get your shop buttoned up and ready for someone else to take over?