A Guide to Passing Down Your Business to a Family Member When You Retire

If you own a business and are nearing retirement age, you might consider passing it on to a family member. A business is a labor of love and being able to keep it in the family can be a rewarding way to end your career. That said, you have some work to do before you hand off your precious company. It's important to come up with a cohesive exit strategy, ensuring a clean break for you and an easy transition for your family member.

The Business Strategy Institute provides access to specialists and tips for entrepreneurs at every step of the startup journey. This guide explains how to pass a company on to your family when you retire.

Know when it's time to pass the torch

Before you retire, make sure you're ready to take this step. While an early retirement can be appealing, you may find that you get bored after you've left your company. Instead of retiring fully right away, you might prefer a step-wise approach. For example, you can cut back to a part-time management role as you slowly transition your family member into a leadership position. Common signs that you're ready to cut loose completely include being ready for a new chapter in life, no longer identifying with your job, and getting bored with your role.

Consider the financial implications of stepping away

Before you call it quits, assess your personal financial situation. Will you still have the funds you need to retire in peace? Smart Asset has a retirement calculator that can help determine your needs. If you aren't ready for retirement financially, you might consider ways to stay involved in the company. Retaining some shares can be a way of building passive income, keeping you going until you figure out alternative retirement income streams.

Address the administrative aspects of transferring a business

Transferring a business takes time, effort, and plenty of paperwork. You have to determine state regulations that could impact the transfer of ownership, for example. The details of transferring ownership depend on the business entity. If you have an LLC, for example, you have to update your operating agreement and issue membership certificates to the new partners. If you have a corporation, you have to create a new shareholder agreement.

Seize the opportunity to make business changes

A change in company ownership is also an opportunity to make changes elsewhere in the company. For example, you might consider transitioning from one entity, like an LLC, to another entity, like a corporation. This guide to company formation types can help you determine the pros and cons of different structures. For example, a corporation has different taxation and reporting requirements from an LLC.

Prepare your family member emotionally and practically

With the administrative points taken care of, you still have to prepare your family member for the actual job of leading a company. ToughNickel offers a comprehensive how-to for preparing someone to take over your job. They recommend using on-the-job training, starting with simple tasks like shadowing and scaling up so that the individual fully steps into your shoes. Also, talk to your family members about concerns they have about taking charge.

Find your next project after retirement

Retirement offers plenty of free time. You want to make sure that you don't get bored. As you start to step back from your company, think about the other activities you can pursue to fill your days. Options range from traveling to picking up a new hobby like gardening or sailing. If you're missing the business side of things, you might also consider acting as a mentor to younger up-and-coming business owners.

Handing your business over to a family member can be a wonderful way to conclude your entrepreneurial journey while entering retirement. However, it takes careful preparation. Trust the above guide to walk you through it.

This blog courtesy of Derek Goodman >> derek@inbizability.com