Here is an actual email from a thoughtful owner and my response.
Hi Ken, thank you for your follow up at this time. I do not have any questions or require assistance. I am semi retired my efforts for my current time invested into my company or minimal in comparison of my monthly salary and yearly retained earnings and I have 25 wonderful employees. I fear if I were to sell and cash out that my employees jobs would no longer be stable And when I die, my beneficiaries, my children will have no residual income passed on to them as they could then manage the company and keep these earnings on a routine basis.
Those are my thoughts. Appreciate any thoughts you may have that may contradict my thinking if I were to sell.
We are on track this year to do about 5 million as compared to a little over 4 million last year. My retained profits typically run 10 to 15% per year beyond my salary.
Best regards, Hans
Hi Hans,
Thanks for your reply. I remember our initial conversation and I appreciate the summary you just provided. I agree that a business running this well with great employees that is not a burden on your time or mental well being is worth keeping!
Regarding your children, here are some things to consider:
Children is plural so there will be more than 1 opinion. This has always been a challenge ever since real estate, a business, or both have been passed down to heirs.
More common than not, there is a lack of agreement on whether to keep the house, property, or business. If they are split, it is rare for one child to buy out the others due to a lack of capital. If the buyout is structured as a note to the other siblings, that could present tensions if things don't work out. The one buying out the others may not get SBA financing if they have not worked in the business and lack pertinent experience.
If all siblings agree to keep the business running, they become partners by default. If they can agree on roles, perhaps they can make it work.
The devil is in the details - who takes care of what (taxes, maintenance, paperwork, insurance payments, etc.)
- who gets to use what (the house, the company vehicle, the lot, etc.)
- who is entrusted with the finances
- who is best to manage the employees (I often hear stories about how things changed once the kid/s took over. This is especially true if the kids were not active in the business).
I have aways thought owners are better off selling their assets and leaving the proceeds to the heirs, whether it is a house, business, or both. Proceeds (dollars) are easy to split up and there are no responsibilities or liabilities being transferred.
I recommend having a discussion with your children about each one's interest level in partial ownership of the business. If all feel they would rather own the business together and have a plan for each of their roles and responsibilities, then that's a great start. The next step is to increase their involvement while you can mentor them. A slow gradual transition will be best for them, yourself, employees and customers.
If the children cannot agree on keeping the business / house / property, it is probably best to sell so you have dollars to split among them. If you have time, you can be selective and find a Buyer that you feel will take care of the business and the employees.
I also recommend consulting a wealth & tax advisor to most efficiently handle any of these scenarios. Since you have time on your side, now is the time to dive into these topics.
Thanks for taking the time to hear my thoughts.
Ken Lee, MBA
Broker and Value Growth Advisor
