Selling your business to family members offers the opportunity to preserve your legacy, keep the business in the family, and provide your loved ones with a secure future. However, like any business transaction, there are important factors to consider, and from our experience, the following piece lays out the pros and cons of selling your business while keeping it in the family.
PROS of Selling Your Business to Family Members
Legacy Continuation
- Selling your business to family members allows you to continue your legacy and ensure that the business remains in the family for future generations. This can be particularly appealing if you have a strong emotional attachment to the business and want to see it thrive under the care of your family members, or as I like to refer to (some of) them… ‘the continent beneficiaries’.
Familiarity with the Business
- They are likely to be familiar with the business, its operations, and its culture, which can make for a smoother transition of ownership. They may also share your passion for the business and be motivated to maintain its success.
Possible Tax Advantages
- Depending on your tax jurisdiction, selling your business to people in your family may offer certain tax advantages, such as lower capital gains tax rates or the ability to use tax-free gifts or exemptions. You’d want to consult with a tax advisor to understand the specific tax implications of selling to family members based on your situation.
Flexibility in Deal Structuring
- When selling to family, you have the flexibility to structure the deal in a way that meets your needs and theirs. This can include payment options such as seller financing, earn-outs, or gifting shares over time to ease the financial burden.
Potential for Continued Involvement
- Selling to family members can allow you to maintain a level of involvement in the business. For example, you can serve on the board of directors or continue as a consultant. This can be a way to stay connected to the business while gradually passing the torch.
CONS of Selling Your Business to Family Members
Family Conflicts
- Selling a business to family members can sometimes lead to conflicts within the family, particularly if there are disagreements over the terms of the sale or the future direction of the company. It's important to communicate openly and potential conflicts early on.
Succession Planning Challenges
- Planning for your succession within the family requires thought and preparation. You'll need to identify suitable successors, ensure they have the necessary skills and experience, and develop a plan for training and development.
Risk of Business Decline
- While these folks may have heard about and been around the business for years, they may not have the same level of expertise as you do. There is a risk that the business could decline under their ownership if they are not adequately prepared or supported when they take over.
Passing the torch to family can be deeply rewarding, however, it also comes with its unique set of challenges. As always, we are glad to explore these matters with you further on a live call. It’s our sincere desire to see you optimize your exit in order to maximize your impact.
