Passing your business on to your children may seem like it’s a good idea, however, there are several reasons why this might be a bad idea — and it’s important to consider them. In this article, we’ll look at some of the most significant reasons why you should not pass your business on to your children.
Commerce and Family Conflict
The Conflicting Motivations between Family and Business
When running a business, decisions often need to be made based on the well-being of the business itself — not the family. This means that hard choices may have to be made that could result in conflict or hurt feelings among family members. This makes it difficult for someone to manage a business when family ties could blur their judgement.
The Difficulty of Applying Fair Criticism
It can be tough for family members to hear criticism from one another in a constructive way. When it comes to business, making such critical feedback a primary part of the interactions among family members — and knowing just how to offer that criticism in a constructive manner — can be a tricky balance to strike.
The Potential for Crisis of Authority
When dealing with family members, there can be a crisis of authority where the lines of authority don’t have a clear-cut structure. This can cause issues with communication and responsibility and can result in a lack of respect for the leader of the business.
The Potential for Long-Term Conflict
There is a heavy risk of tension and conflict that may arise as a result of your children taking on the ownership of your business. This could become a long-term issue that affects the financial health, culture and operations of your business.
The Issue of Motivation
When it comes to business, the most successful enterprises prioritize activities and strategies, and the strategies can change quickly – and those strategies need to be driven by a specific motivation. The concern of children inheriting a business is that, if the motivation is not properly considered and understood, the children may not be motivated to run the business as well as you imagine that they would.
The Issue of Ability
Managing and leading a business is fraught with hard decisions and complex challenges, and you may have a misperception of children’s ability to be successful at it. It is important to remember that the skills required to do the job are far more complex than you may think.
The Issue of Instability
It is not uncommon for complications to arise when children take control over a business from their parents. Even when the children do possess the skills and abilities to manage and lead the business, instability in the business can arise due to their inexperience.
The Issue of Emotional Maturity
This can be a particularly vexing issue, as the maturity level of your children is often hard to predict. Even if your children possess the skills and desire to manage the business, there is no guarantee that they are emotionally mature enough to handle being in charge.
The Issue of Leadership
You will also need to consider whether or not your children possess the necessary leadership skills that they will need in order to successfully manage the business. This is a difficult thing to ascertain without testing their mettle.
The Issue of Interest
Perhaps the most important thing to determine before handing over a business to your children is their level of interest. This is the factor that will drive their commitment and ultimately, determine the level of success of your business.
Tips for Deciding about Inheriting Your Business
When it comes to determining whether or not your children should inherit your business, there are a few key things to consider. Here are some tips on how to approach the issue:
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Establish Your Criteria
Firstly, it is important to create a set of criteria for you to measure the capabilities of your children for the task at hand. Examples of criteria could include testing their knowledge of the business and industry, their prior experience, and the business skills they already possess. -
Encourage Your Children to Show Interest
Encouraging your children to demonstrate their interest in the business can give you an insight into where their passion lies. Have conversations with your children and pay attention to their responses to help you gauge their interest. -
Get an Outside Perspective
A third-party opinion such as a professional advisor or outside consultant can help provide a realistic assessment of the situation and can offer proactive advice to help you make the right decision. -
Assess What’s at Stake
Finally, consider the financial and emotional impact that passing your business on to your children might have. Topics to consider include the impact to personal relationships, the financial value of the business, and potential legal implications.
As a business owner, deciding whether or not to pass your business on to your children is no easy decision. There are a number of considerations to weigh, both for you and your children, and it is vital to ensure that the decision that you make is for the best. By taking the time to consider these issues, you can ensure that you make an informed decision that is in the best interests of your business and establish a secure foundation for generations to come.
