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How do I transfer my business to my children?

Josh Patrick
Profile Picture of Josh Patrick For the past 15 years Josh Patrick has owned and operated a wealth management business, Stage 2 Planning Partners, that focuses on the strategic issues faced by the owners of private businesses.

Mr. Patrick contributes to the New York Times You're the Boss blog and writes about creating value. He has also written for Inc.com, Open Forum and various trade publications. His passion in life is helping private business owners create extraordinary value with their businesses and lives.  Full Bio
Q:I am assessing my exit alternatives including the option of transferring my business to my children. Do you have any advice on things I need to consider to ensure a successful transition?
A:

Yes, I think that if you're thinking about transferring your business to your children you should think about some of the following issues:

  • Do I want to give or sell my business to my children? Selling is the only rational thing to do.

  • What sort of financial risk am I taking if I sell my business to a child?

  • How will I treat children who aren't in the business versus ones in the business - Hint: Never let children who aren't in the business own stock in the business.

  • Does my child have the ability to run my business?

  • What rules should I have for having children join the business - Have a family business constitution where you assemble rules for children to work in the business. See below for some rules.

For children joining the business you should have, at the least, the following 8 rules:

  1. Your child should work for at least two years outside the business before joining the business.

  2. Your child should have had at least one promotion in their job outside the business.

  3. Your child should have achieved a certain level of expertise in their job.

  4. Your child should not be allowed to join the business at a level higher than the one held at their outside the business job.

  5. Your child should be paid the going wage for the job they're doing.

  6. You should not directly supervise your child when they join the business.

  7. There should be an explicit program assembled for learning your child will have to follow to get more responsibility.

  8. Only promote your child when they've earned the promotion.

Children joining a business create a host of issues that when solved provide a very satisfying way of transferring your business.

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