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Lucy Ivanoff: Is leaving your business to your children viable?

ivanoffonphoneMore on business consulting at LucyIvanoff.com.

Recently I read a blog post in the New York Times blog – You’re the Boss. (By the way, this is an informative blog for small business owners/managers, http://boss.blogs.nytimes.com). It was discussing the issues that arise when parents want to bring their kids into their business. There was the usual information about what to look out for, how mechanically to manage the transition and so on, as most such discussions include.

But what I found interesting was that this author’s first consideration in the analysis was to be sure that the business and the market is viable. It is endlessly fascinating to me how often small business owners, whose business is struggling, still tell me that their main focus is leaving the business as their legacy to their children. The business owners may be in their early 40’s so they are theoretically facing another 20+ years of struggling and working to leave their children their business. Is this being done as a rational thoughtful financial decision? Or is this an emotional matter? I find most of the time it is emotional. Most of the time these business owners started their business as a labor of love, maybe a family business passed down from their parents. They were seeing this rosy future where their children would start working in the business, then take over as the parents ride off into their retirement sunset.

The last thing they think of doing is sitting down and figuring out if the struggle is worth it. They are exhausted by the daily effort of simply keeping the business going. This business that they used to love is now a daily struggle. But maybe the business has value, even if it is currently not profitable. And that is the legacy that they continue to struggle to maintain. But maybe this is what the owners need to look at for the current value, not the future value. Instead of facing twenty years of working on a business to leave something to their kids maybe they should be looking to sell the business while it has value and investing some of the money for their kids. And maybe that ride into the sunset could happen sooner. And what happens if you work all those years at it and the kids want to be artists, actors or techies?

Don’t misunderstand me. I am certainly not saying that growing a business to leave to your kids is always a mistake. If you still love the work, if the business still if viable and has a healthy future why not stick with it. But I think it is important to look realistically at your business, its current financial condition, its potential, the current market and what you think the future holds while you still can, while the business still has that value you are seeing now.

 

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