If you’re considering transferring your business ownership to family, you might be tempted to put your family’s wants over your own goals.
While this altruism may be admirable, it can also cause more problems than it solves. Consider the case of Darnell Orie.
Darnell Orie was unsure how to approach his business exit. His son, Hannibal, was the main reason his company had tripled its revenues and profits over the last 15 years. And even though he wanted to begin winding down his own involvement in the business, he knew he had to keep Hannibal motivated to grow the company: His retirement depended on Hannibal’s continued success in growing the company.
Darnell had always wanted to transfer ownership to Hannibal, but he knew Hannibal didn’t have the money to pay him full value. He wanted to begin transferring ownership now, but he also felt it would be unfair to expect Hannibal to pay full value, because Hannibal was primarily responsible for the business’ success through his work.
While Hannibal agreed that his sweat equity should lower what he would pay for ownership, Darnell knew that Hannibal’s stepmother and half-sister would probably disagree, even though they were not involved in the business.
Darnell is agonizing over three goals: his own financial security; making sure Hannibal’s sweat equity is rewarded; and treating his wife and daughter fairly.
Like many owners, Darnell was equally concerned about his goals, as well as his family’s wants and expectations. He simply didn’t know how to make them whole.
However, there are three tools he used to help prevent his ownership transfer to family from becoming a zero-sum game.
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