Transitioning the family business

Sep 24, 2018
Father and daughter working together

As baby boomers head toward retirement, many will be faced with the prospect of selling or transferring a family business. If you’re a business owner in this situation, here are five key issues to keep in mind.

Plan well in advance

Selling a business is not just a financial decision; it is also a lifestyle change. Make sure that you prepare not just for the financial consequences, but also for the personal ones for a successful transition.

Beef up the financial statements

Businesses often sell for a multiple of their most recent year’s net income or gross profit. As a result, any increases that you record in your final year — for example, from cutting unnecessary expenses or increasing billings — could pay off exponentially.

Consider a gradual transition

Assess the possibility of remaining active for a year or two in the business, after you sell it, so that the new owner can better leverage the goodwill that you have built up. This may increase the selling price and help you ease into retirement.

Should you sell to your kids?

A business in your kids’ hands could well retain all of its goodwill value. However, it’s important to make sure that your kids are willing to take on the responsibilities and have the necessary skills.

Invest the proceeds gradually

Whether you sell to your kids or a third party, remember to take your time with the proceeds. Gradually averaging into an appropriate mix of fixed-income and equity securities can help avoid buying at a market peak.

We can help you review your options as a business owner and make sure your financial plan, retirement plan and business succession plan are in harmony.

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