Should I Give My Business to My Children or Sell the Business?

Passing down your business to your children can be a good idea if they already have the relevant experience. Gifting is the most popular method, although other methods like passing the rights through a trust also exist. If you plan to retire while having one of your children manage the company, then gifting is a suitable option.

However, your decision should be based on your goals, and passing down the business isn’t always the optimal solution. Selling your company makes sense if it can provide more profit and opportunities. This article talks about the pros and cons of both.

Gifting vs. Selling Your Business

The benefits and drawbacks of gifting and selling your business revolve around their implications on management, taxes, revenue, relationships and opportunities.

Pros of Gifting Your Business

Gifting your business to your children comes with the following benefits:

• Continued legacy: Your business legacy continues within your family. If your children share the same values and goals, the business can easily achieve these goals, compared to welcoming unknown third parties.
• Tax exclusions: If your business meets the appraisal value requirements, you can gift your business to your family tax-free. The IRS states that the annual tax exclusion for 2025 is $19,000. If you plan to gift your business through your estate, the lifetime gift tax exclusion for 2025 is $13.99 million.

Cons of Gifting Your Business

Although common, leaving your business to your children also comes with drawbacks:

• Potential business failure: Your children might not be equipped to run your company. If your employees don’t get along with your children, the management changes can also affect your company culture. These can ultimately lead to the downfall of your business.
• No retirement revenue: Once you gift your business to your children, any revenue generated will now be theirs. In this case, ensure your retirement savings are sufficient to support your lifestyle.
• Tax requirements: If your company’s value exceeds the annual tax exclusion, you’ll have to pay the gift tax as the business donor, which ranges from 18% to 40% depending on the taxable amount.
• Emotional implications: If you have multiple children, you should choose which one among them should manage your business. This can be emotionally taxing for you and your family, and may even cause conflict. The oldest child is often the successor, though you should evaluate the suitable child based on their aptitude and leadership skills. Creating a board would mean the siblings can work together, which is ideal if they have varied areas of expertise. However, expectations might also strain your relationships.

Pros of Selling Your Business

Considering the drawbacks of gifting your business, take note of the benefits of selling as well:

• Increased retirement savings: An experienced business broker can offer a good selling price, which can be sufficient for retirement. While some buyers want to acquire the whole company, if profitable enough, they may purchase a majority share instead.
• New work opportunities for your family: Your family doesn’t need to fully detach. If they are employees, they can still work at the company even if you’ve sold the business to a third party. With the new capital brought about by the sale, your children can also take on new roles if the company expands its products and services.
• Increased business value: Transition is smoother if your family members remain as employees, so buyers may agree to pay more for your business. Additionally, if your business is at the height of its market value, selling right now can get you the best possible price.

Cons of Selling Your Business

Selling your business also comes with a few drawbacks:

• Lengthy negotiations: Selling your business involves large sums of money, which can mean complex transactions and a lengthy negotiation process. It can take a few months before you reap the benefits of the sale.
• Noncompete agreements: Some buyers may require a noncompete agreement, limiting you from starting another similar business.
• Change in company culture: Because a third party will be purchasing your business, this can result in drastic cultural changes within the company.

Best Practices for Selling Your Business

If you’ve decided to sell the business, keep the following best practices in mind:

1. Have an Open Conversation With Your Family

An open conversation with your children can help you understand their positions. Selling your business is not just a personal and financial decision, especially if your family members are employees. It also affects the life of your family. You can explain why you’ve decided to sell to help them understand. However, in the end, they should respect your decision.

2. Identify How to Make Your Business Attractive to Buyers

Your reasons for selling might be due to retirement, exhaustion or a partnership dispute. However, these wouldn’t be attractive to buyers. You must make it clear that your business is not crumbling and that you’re not trying to escape a disaster. Instead, you can highlight if yourcompanys has increasing profits, consistent income and a strong customer base.

3. Get a Business Valuation

Getting a business valuation ensures you reasonably price your business. Consulting with a business appraiser can help you understand your company’s worth and give your listing price credibility. The appraiser typically considers the following:

• Capital structure
• Potential earnings
• Market value
• Assets and liabilities
• Company management

4. Seek Expert Help

Experts, like business brokers, can help you get the best value out of your business. By deeply understanding your company structure, market and business needs, they can propose a suitable sales strategy that can connect you with the right buyer. They can also assist you in negotiating, especially if you receive multiple offers.

Consider Selling to Your Children

Gifting is only one method for handing down your business to your children. You can also sell to your children, create an Employee Stock Ownership Plan (ESOP) if they are employees, or pass down the rights through a trust. Whether you should sell your business to your children depends on their purchasing capabilities, provided they have the suitable management experience. This option can be a good middle ground where you get to have a little bit of both the benefits of gifting and selling.

Optimize Your Opportunities With Synergy Business Brokers Today

Synergy Business Brokers has over 20 years of experience selling businesses and has worked with over 40,000 potential buyers throughout the U.S. and overseas. If you plan on selling your business, we can help you. We provide confidential consultations to understand your needs before offering an estimated selling price. Plus, we have a 15-step sales process to assist you every step of the way. We don’t charge fees until your company is sold. If you’re ready to get started, fill out the registration form today.

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