When it comes time to sell your business, you might consider selling your life's work to a family member. This can be an extremely appealing option. After all, you'll be passing on your legacy to someone with shared values that you both know and trust. There may also be greater flexibility around the tax efficient manner in which the transfer of sale takes place and a longer more gradual payout period. These possibilities open up due to the familiarity and trust between the buyer and seller.
But fools rush in! There are also potential drawbacks to selling a business to your relatives. Carefully weigh the pros and cons before making a decision.
A key advantage of selling your business to a family member is the ability to maintain control and maintain a legacy within the family long after you retire…perhaps even long after you're gone.
If the business has been in the family for generations and you want to see this continue, selling to a family member may seem like a forgone conclusion.
With the additional trust and familiarity of family members, you will have greater flexibility around the terms of the sale. Consider the following:
Familiarity and trust not only open possibilities, but also the sale process go more smoothly, typically with less accounting fees and legal fees.
Consider the potential downsides to selling a business to relatives. One concern is the risk of conflicts of interest or nepotism:
As with any business dealings, there is always the potential for damaging personal relationships if the sale does not go as planned or if there are disagreements during the transition period.
Finally, there may be a lack of objectivity and outside perspective when selling to a family member, as the seller may be more inclined to overlook certain issues or challenges. If the sale value of the business was ever called into question by the ATO from the perspective of Capital Gains or pension, it is more difficult to establish an objective valuation of the sale price when sold to relatives. Due to this concern, it is a good idea to involve a neutral party (such as a business broker or accountant) to provide a written valuation that can justify the sale price.
If you do decide to sell your business to relatives, there are steps you can take to increase the chances of a successful transition.
Carefully consider the pros and cons of selling to family. Use the 6 tips above to ensure a successful transition. By clearly defining roles, establishing a fair price, using neutral professionals and setting up a plan for succession, owners can increase the chances of a smooth and successful sale.
Need help or advice? We'd love to chat. Discuss your business sale with our experienced brokers.