Choosing a Successor for Your Business

By Sandy Botkin

Most people are so business growing their business that planning the business succession goes on the backburner. It is critical that succession be considered. After all, why not reap the rewards of your success with a great retirement as well as keeping the business in the family?  Here are some thoughts that you need to consider, which will apply to ANY business owner:

1. The first step is to identify a successor. This does NOT mean to pick the oldest child or grandchild, which was the case during the middle ages. You need to pick the one you think is most able considering their strengths and weaknesses.
Being a good manager isn't enough. They need to have the ability to focus on the big picture and think strategically.

2. Groom your successor. Hiring your kids or grandkids is a great way to shift income and teach them the business. It also will give you insight into what type of worker he or she may be.

3. Communicate to the kids why you picked a successor in order to avoid sibling rivalry.

4. Giving one kid the business doesn't mean you need to leave the others "out in the cold." You could give the others the assets such as the business real estate in trust that can be leased to the business. Alternatively, you can give them non-voting shares in a corporation or non-voting interests in an LLC.

5. You, as the owner, may need to be compensated for the business. This can be done with a consulting agreement in which you get paid a salary for a number of years. Alternatively the buyer/children can go to a backer and get financing to buy you out or you can finance the purchase with seller financing.

6. Finally, if you have no kids who are qualified to run the business or don't want the business, you will need to sell it to a third party. This will entail cleaning up financial statements for several years, deducting any payments to country clubs or other personal items.

The bottom line: Selling a business can really beef up your retirement. However, you must consider these factors several years in advance before you consider retiring or the business might just die off leaving your family with nothing.