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Business succession in Texas: Three tips

Business owners are wise to put together an exit strategy years before retirement. Three questions to answer to help ease this transition and better ensure both the business and the former owner move on successfully include:

  • Do you want to keep the business in the family? If so, it is best to start looking at family members for the position as soon as possible. The transition of a business to a family member can be difficult on the former owner as the transition may benefit the family to the detriment of the business. Begin planning early to address any potential issues.
  • Should you transfer the business equally between family members, or fairly? If your goal is to keep the business in the family, it may be best to consider a fair as opposed to equal transfer. Some family members will take an active role in the business, while others will pursue different professional aspirations. A publication by the Texas Bar Association, a group of legal professionals from throughout the state, notes that in these situations it is often best to transfer a larger portion of the business to those who play an active role in its management and operations.
  • Do you want the best price for the business or less stress? Business succession plans often include a request from the buyer that the seller mitigate certain risks. These indemnity provisions can result in higher overall price for the business in exchange for the seller taking on these risks. If this translates to increased stress, it may be wise to agree to a lower selling price in exchange for removal of the indemnity provisions.

Start answering these questions now, before the transition is needed. It is not uncommon for a business owner to experience an unplanned event and find themselves forced to transfer the business without a proper plan. Put together a plan now to avoid the need for a rushed transfer.

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