Starting a business is tough – and keeping it in business is even tougher. Have you thought about an exit strategy? When will you sell the business? I talked to three of our customers who have successful businesses and have plans for their children to take over. Being able to establish a thriving company – and doing what you love – is something to be proud of. On top of that, if you have children who have that same passion and excitement for the business, you can pass it down to keep it in the family.
Bob Tanon currently owns GymStars Gymnastics and is involved with other businesses and consulting.There is a 70% chance of failure when you pass your business down to your children. There is a 90% chance of failure if it’s passed down another generation. This is important to keep in mind and plan accordingly to make sure you have a succession strategy for success and not convenience. Bob has owned the gym for 16 years. One of his daughters, J.T., is currently the general manager and learning more about different aspects of the business. She is planning on buying the gym from him in a couple years. He is very knowledgable on the topic of generational succession.
Diane Trifiro owns Hand2Hand Gymnastics. Her son, David, started taking classes in 1997 and she bought the gym in 2010. Since owning the gym, they have had a significant increase in revenue each year. Her son is in his late 20s and plans on buying the gym in 5 years. He is already very involved in the business and they have a good plan for the transition.
Joe and Diane Barron started Barron Gymnastics part time in 1978. They have three children and two of the children started the buying process January 2015 – Scott and Julie. The children will purchase majority ownership in the gym – Joe and Diane will keep 10% to remain involved and invested. They have laid out a succession strategy and have been moving into their new responsibilities and preparing for the transition.
Each one of these businesses is very different but through my conversations with them I saw a lot of similarities. If you’re thinking about what you’ll do when you want to retire or sell your business, some of these benefits and challenges may help you in that process.
- Being able to build a business that you can pass down to your children is a great feeling as a parent. It’s also financially rewarding to know that you will be able to retire and they will have an opportunity to maintain and grow the business to support their families.
- Working with family builds your relationships. Having something in common with your family members is valuable. To be passionate about the same things and interested in each others’ lives is great. Working with them in the same business isn’t always easy, but it builds your relationship at the end of the day.
- Selling to someone who knows the business already and the customers know as a leader will help the transition. For Bob, he is very removed from the daily tasks from the gym so most people think that JT is the owner already. He is there for high level decisions and training her to be ready to be an owner and entrepreneur.
- Financially, it’s better to sell to somebody you know instead of involving a third party. You can pass it down on a dollar for dollar value. This also eliminates the stress of finding a buyer. You wouldn’t just want anyone to come into your gym unless you could trust them and know they would treat your customers well.
- Transition to new ownership can be smooth and not disrupt any services. Each of the families I talked to have been incorporating the children’s ideas throughout the years. This helps the transition because the new owners won’t feel like they have a lot to change. By tweaking how the business is run over a few years, the staff will be comfortable and remain happy employees.
Things to keep in mind
- New owners have to prove themselves. This business isn’t just handed over to them – they still have to work. The Barrons did a good job explaining that the children don’t feel entitled to the business at all – they are honored to have this opportunity.
- Business is business – even if it is with family. When people treat their business operations differently because it’s family, issues arise. This business has to be successful and everybody involved has to be treated as a co-worker.
- Honest and open communication is vital. Communication between the family is huge because the rest of your staff is observing. If the family/owners don’t communicate well, the employees won’t either. Learning to be constructive in expressing frustrations is important.
- Meet about the business regularly and privately. Discussing what is going on with the business is important to stay on track with the selling plan. Taking a high level look at the business is helpful to do outside of the gym and on a regular basis to keep the goal in mind.
- Find out your strengths and delegate. If one person really loves doing online registration and you hate it, delegate it. If you love it, keep it on your responsibility list. The main thing here is to be able to know what you’re good at and what you enjoy doing. Then, you have to be able to delegate to other people. As an owner, you have to get behind the scenes – you can’t be on the front line all the time.
Passing your business down is very exciting but requires preparation. These folks have been working on their transition for years already and still have some time before selling to their children. Have you thought about passing your business down? What questions do you have?