4 Alternatives to Leaving your Business to Your Kids

Author: C. Curley Date: September 24, 2012

Succession Planning

If succession planning isn’t an option, consider these alternatives for an exit strategy.

It’s never too soon to start planning your exit strategy, particularly if you don’t have children to play a role in your business after you leave. Small business owners tend to be so focused on survival that they overlook this crucial step, leaving them unprepared when they retire. Regardless of which route you take, start considering a plan that would protect your business and provide you with financial security in retirement.

Take a look at five common options if a child isn’t taking over the business:

1. Sell the business.

It takes several years to prepare for the sale of a business. Whether the buyer is a key employee or a competitor, it's important to have someone in the business who can ensure as smooth a transition as possible, says Cloyd Havens, a Los Angeles-based attorney who focuses on business planning and succession. While determining how the business will be run prior to closing, you'll need to have your assets, customer lists and intellectual property intact.

2. Groom an in-house replacement.

Betty Galligan doesn’t intend to retire for many years, but she’s already prepping one of her employees to fill her shoes as president of Newberry Public Relations & Marketing Inc., in Providence, R.I. "I want a legacy to continue," she says. "I've built relationships with the clients and want to ensure they are taken care of."

The upside of doing so is a well-planned exit strategy, says Havens. The risk is that the person could leave and become a competitor, he adds, so choose your replacement wisely.

3. Create an employee stock option plan.

Galligan is also considering a transition to an ESOP model, under which the remaining employees would assume control of the company and accumulate shares. This is a long, complicated process that would require working with a tax advisor to understand the tax implications of ESOPs. Havens says that an ESOP is a viable alternative "if you’ve got 12 or more employees and sales in the $5 to $10 million or above range."

RELATED: Is an ESOP Right for Your Company?

4. Hire a non-family CEO.

This option keeps ownership in the family but allows for succession of control.
Be prepared to relinquish some control while you're still there to someone with a different business philosophy than your own. Maintaining stability is important in avoiding loss of revenue during the transition.

RELATED: 5 Basic Retirement Planning Tips

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