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Greg Ast
Greg Ast is president of Legasus Group (www.LegasusGroup.com), a family business consulting firm offering services designed to enhance clients' growth, success and profitability. Legasus Group has a staff of trained professionals - specialists in management, family-owned businesses, strategic planning, profit enhancement, finance, international business and executive development that work with family-owned and privately-held businesses. You may contact Greg at (316) 681-0444 or by e-mail at gast@legasusgroup.com.
Business Consulting
2002-07-01 10:41:00
Kids may get more if from the estate
Question: My wife and I have a construction business. We have done pretty well. We are in our early 70's. While we would like to keep it in the family, we don't feel our children would be as committed to the business as we have been. We feel we would realize more, as would they, from us selling the business.  Then, they would all get their share from the estate. We feel if we don't do it this way, without their focus, there may be nothing for anyone. Is this good thinking? How do we best determine the value of our business?
Answer:  Your situation and thought process is increasingly common in today's world.  There are several issues and possibilities in the situation that you have just described.  Let me try to explore several of those possibilities.  First, plan a family meeting. Begin the meeting by asking family members what they would like to see happen for themselves, the family, and the business.  It may be that your children are not truly interested in running the business in the future, and the best option is to pursue a sale.  On the other hand, there may be one or two of your children that would like to participate in the business, while the rest would like to pursue other interests.  A family meeting to identify individual desires and issues to address can help guide you in your decisions.Next, make sure you and your wife are financially secure for the remainder of your lives. If you are not yet financially independent from the business, your best option may be to "sell" the business to your children.  The perspective of having to buy out Mom and Dad can easily determine a next generation member's commitment to the business.  Even if you are financially secure, asking your children to discuss a buyout can identify real issues, concerns, and interest levels.  I often challenge parents and children to look at an ownership transition as if they were making an arms-length, non-family transaction.  What do the current owners want to achieve from a sale?  Would they sell to anyone, or do they want assurances regarding the future of the company, employees, commitment to the community, etc.  Would the children invest in this business if it were not in the family?  Would they choose to be in partnership with their siblings?  Do they want to be equal partners, or allow one to have a majority? Get answers to two tough questions: First, are the children committed to the business? Second, are they willing to make the effort to define guidelines for working with their siblings? Often, family members indicate they want to continue the business, but they have not defined the rules for how they'll work and be co-owners with their brothers and/or sisters.  Siblings need to define policies on compensation, perks, defining roles, admitting family members as employees (spouses or their own children), dividends, conflict management, etc.Your concern about your children's commitment to the business is a very real issue to explore with them.  Successful sibling partnerships require more than a commitment to the business. They require a commitment to a partnership!  One alternative is that your children own the business, but have non-family members that lead and manage the company.  Regardless, both issues must still be discussed.If, after all these steps are completed and 1) your children still have a desire to take over the business and 2) you are financially independent from it - I would encourage you to allow them the opportunity. Successfully running a business is never easy. But as you well know, it can be a very rewarding experience, probably more so than selling out. Get them started with your best wishes and your blessing!However, if all family members have agreed that selling to an outside party is the best alternative, I encourage you to seek assistance from expert advisors.  Valuing and selling a business requires unique skills and activities that must not distract you from maintaining a healthy business.  Contact your attorney or accountant regarding experts that can value the business and assist you in seeking a buyer and negotiating the deal.  Alternatively, contact us and we will refer you to the appropriate professionals. Do remember there are several viable solutions for your situation.  
 
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