GUIDE: EXIT YOUR BUSINESS | STRATEGY ONE:
Sell or Transfer to a Family Member
Considering keeping your business in the family? The dream of many small business owners, keeping your business in the family ensures that your legacy lives on and provides a living for your heirs. But how do you successfully and efficiently make this transition?
Choosing the Right Heir
Choosing an heir as your successor is a popular option for business owners, especially those with children or family members working in their organization. It is regarded as an attractive option for providing for your family by handing them the reins to a successful, fully operational enterprise.
Tips to pass your business onto an heir smoothly include:
Determine who will take over: This is an easy decision if you already have a single-family member involved in the business. However, things get more complicated when multiple family members are interested in taking over.
Provide clear instructions: Include instructions on who will take over and how other heirs will be compensated.
Consider a buy-sell agreement: Many succession plans include a buy-sell agreement that allows heirs that are not active in the business to sell their shares to those who are.
Determine future leadership structure: In businesses where many heirs are involved, and only one will take over, you can simplify future discussions by providing clear instructions on how the structure should look moving forward.
Failing to address these steps may lead to a less than desirable transition. For example, if a future leadership structure is not implemented, and the business passes on to more than one heir, the resulting power struggle may negatively impact the business. Alternatively, each heir may incorrectly assume the other will take over day-to-day responsibilities.
Before instructions can be given on who will take over leadership of the business, a future leader should be chosen. This is likely to be complicated when more than one heir is interested in taking over. Business owners can reference current business contributions and responsibilities from potential heirs to assist in choosing a successor. Ask the question; is inheritance the best idea? If your successor is skilled and business savvy, then perhaps the answer is “yes.” If not, you may consider selling your business to a co-owner, key employee, or outside buyer instead.
Advantages of Inheritance:
Can make for a smooth transition by grooming a family successor.
May allow for you to keep a hand in the business in an advisory (or other) capacity.
Continue the business under the family name.
Frequently Asked Questions
Do you have questions about exiting your business? You should consider checking out our Resource Navigator. It houses the contact information of 400 of our most helpful partners from across the state who provide free to low-cost assistance to Iowa entrepreneurs and small business owners.
Q: Should I pass my business down to a family member?
A: This depends entirely on the counsel of your legal or tax advisor and the competency of your family member(s).
Q: Is there someone I could talk to about handing down my business to my children?
A: This sort of exit strategy is best facilitated through a trusted tax or legal professional.
Q: When should I begin succession planning?
A: Whenever you find it necessary. Some business professionals believe you should begin planning when you want to move on to other projects, while others suggest you should have your exit strategy in place before you make your first sale.
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NOTICE: The information included on this website is to be used only as a guide. It is not intended to cover all provisions of the law or every taxpayer's specific circumstances.
GUIDE: EXIT A BUSINESS
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