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??? about passing on the family business

20 years ago

well,we're finally getting serious about retirement,only because health issues force us to. husband has run his family business for close to forty years and his ambitious and motivated son is ready to take over. question is this,,how do we negotiate a price for the business? due to those pesky health issues,,the company isn't making nearly what it did and what it could again,,so value isn't great. however,,there are some assets,tangible and otherwise. son is to go on payroll and make the company into his own,,he feels he can make major money.. but he doesn't think he should pay for the business because he's "putting his heart and soul into it",,while we thought that since he was on pay roll and was being trained by dad ,,we would come up with a price and offer it to him interest free. this would go a long way to making our retirement work,,since it looks as though retirement is being forced upon us. by the way,,if our son hadn't been preparing to take over the business for so long,,we might have had to close it alltogether,,so he's coming aboard when we really need him,,despite it being a few years too soon.

thank you for any advice,,(besides see a proffesional!!),,i'll be making that call next week. i was just hoping for some logical observations to mull over with my husband. thanks again.

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Comments (2)

joyfulguy
20 years ago
Do I understand that he hasn't been employed there before now (on more than an occasional basis)?

If he goes elsewhere and gets paid for his work, in what way is that different from this situation?

He has an additional advantage here in that he can draw freely on his Dad's advice, judgement and skills much more than could an outsider. Or than could he, were he to work elsewhere and then want to take over the business.

If he went to work elsewhere and there was a consideration that he might be groomed to take over the business, would he expect to have it given to him without compensation to the former owners? For the assets? Let alone the good will? Or the mentorship on the part of the current owner?

Are there other family members who might feel that they should have some interest in what has been the parents' business, up till now?

On the other hand, if this is a substantial business, you might want to run what we call in Canada an "estate freeze", which is to issue two kinds of stock, the preferred kind of a specified dollar value that relates to the current value of the assets and pays a rate of return on that until, either by prior agreement or through negotiations initially or ongoing between buyer and seller, are paid off as the new owner is able to do so.

There's another class of shares, called common, that are issued, in many cases to the oncoming generation, so that future growth may relate to this class of shares.

Sometimes some of the common are issued related to being offspring of the parents, whether participating in the business or not, and another group of the common issued to the family members who will be participating in the business.

In your case, if you think that the business that was larger earlier but has been cut back recently for mainly health reasons but has good potential for later growth, partly related to its earlier size, part of the common shares might be issued to the parents, as well, so that they might participate partially in future growth.

Sounds as though such ideas may not be received too enthusiastically by your son, however, if he feels that he shoud get the business free of charge.

Freqently the chair in which one sits does seem to have quite an effect on one's point of view, doesn't it?

Especially when it comes to money.

I hope that you can work out an arrangement to suits everyone, not just currently, but down the road, as well.

Good wishes for a wonderful New Year to you and yours.

ole joyful
Jonesy
20 years ago
Talk to a realtor/broker about the value of your business then cut the son a good deal.
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