Owning a small business is often a family affair, where children grow up working in the family business and sometimes take over the reins when mom and dad decide to retire.
While this idyllic business model might seem smart and straightforward, some aspects of your children’s role in your business can be detrimental to the financial return you get on that business if you ever decide to sell.
Here are three things to consider when you think about your kids and the future of your business:
Making Your Kids Work For Free
Having your children as staff members who only earn tips might save you on your payroll today, but it can dramatically affect the value of your business. Any potential payroll for any underpaid or unpaid staff will need to be adjusted and will affect the amount a buyer is willing to offer. This also goes for family business situations where family members earn way more than fair market value for the job they do. The solution? Pay family members a fair market wage for the work that they do today so you can keep future buyers from taking that amount off the top.
Only Trusting Your Kids To Do The Job Right
It can be difficult to find good employees, so some small business owners make their children responsible for almost everything. Leaning so heavily on your children can make your life easier today, but if your children have no intention of taking over the business when you retire their massive role in the business can cause major issues with a new owner. If you sell, your kids probably won’t continue on as employees because their loyalty is to you, not to the business itself. This will leave a massive void in the business that a potential buyer will see as a massive issue. How can you solve this problem? Keeping your entire staff, or at least some key players, cross-trained in everything that makes the business run will help with the transition to a new owner.
Using Your Children As Your Only Retirement Plan
More often than they should, family businesses that get handed down to children falter or fail completely. Why? The drive and passion you have for your business is yours alone. As we said before, in many cases children are loyal to their parents, not to the business itself. If your kids don’t want your business but do want to continue the entrepreneurial legacy of your family, a good path can be to sell your business and then use that money to invest in a business that your kids are actually passionate about.
Do you own a family business where one (or all three) of these considerations might become an issue down the road? Do you have questions about how payroll adjustments are calculated in negotiations? Protect the future return on your business investment and contact us today.
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