Since I started peddling my new book, I’ve been asked to sit on a number of panels about succession planning. Event organizers tend to want all of the options for exiting a business represented, and I’m usually the token panelist who has sold a company to a third party. The rest of the panel is usually composed of people who make a living helping business owners transition their company to the next generation of family members.

I find myself sitting on my hands a lot in these meetings.

I bite my tongue every time someone suggests transitioning a business to a family member. Personally, I believe family businesses are wrought with problems. Nevertheless, I usually try to say something objective or at least neutral about family businesses, but with you, I don’t need to mince words. So here are my top 7 reasons not to transition your business to your kids:

1. What if your son or daughter is smarter than you?

If you have smart, ambitious kids, they will be inclined to want to live up to your success. The late Ted Rogers, who has been called “Canada’s Steve Jobs,” became a billionaire by being a maniacal worker and tyrannical boss. In his final years, he admitted that his legendary drive came from wanting to live up to his late father’s success.

If your kids are as talented as you think they are, wouldn’t you want to give them the satisfaction of applying their talents to a business they started on their own? The one thing your business can’t give your kids, and the one thing you can’t buy them as a parent, is the self-esteem that comes from knowing they are succeeding on their own.

2. What if your son or daughter is dumber than you?

If your child lacks your smarts, intuition, acumen, etc., he or she will forever toil in your long shadow. Would you want your kids to feel inferior for the rest of their lives?

3. What if your kids are lazier than you?

Most second- and third-generation family members feel entitled to the fruits of the family business. Do you want to raise spoiled kids and grandkids?

4. Your kids may not want to run your business.

No matter how successful and profitable your business, your kids may not want it. Allen Taylor sat beside me on a panel discussion hosted by Houser, Henry & Syron last week. Taylor’s dad, Lawrence, started Taylor Pipe in 1964. When Lawrence got sick, he asked Allen to join the family business. Allen had had no intention of joining the business and, in fact, was on his way to a law degree when his father asked for his help. Allen joined his father’s business out of a sense of obligation rather than an interest in pipe fittings.

Would you want your kids to resent you for guilting them into the business down the road?

5. What if you pass on a jalopy?

Parents often see their kids as the natural successors for their business in part because they don’t know what else to do with the company. Despite being profitable, the company may not be sellable, and its managers may lack the experience or finances to buy the business, so parents invite their kids to buy the company over time for a share in future profits. If nobody else would buy your business, why would you want to lock your kids into the same handcuffs you’ve worn?

6. What if you alienate your employees?

As soon as you invite your newly minted MBA son or daughter to work in the business, your professional managers will dust off their résumés, realizing that Junior has won the lucky-sperm lottery and is about to leapfrog them on the company ladder. Would you want to alienate the very people who have dedicated their professional lives to helping you succeed?

7. What if you upset your other kids?

A family feud erupted when Lawrence Taylor’s lawyer revealed, in the reading of his will , that Lawrence wanted Allen, and not his siblings, to run the family business. Would you want to irrevocably change your relationship with the children who are not invited to replace you?

You have better options:

You can sell your business to a strategic buyer, corporate refugee, company manager or private equity group or maybe even go public. Buy lunch for an M&A professional or a business broker and ask for his or her advice.

If you’re desperate to give your kids a helping hand in life, sell your business and give them some of the proceeds.

There’s an old saying that as parents, “there are two things we should give our children—one is roots, and the other is wings” (thanks, Emma). I don’t think you should snap your kids’ wings by letting them take over your business.

What do you think?

Below you’ll find some new articles I wrote last week on selling a business.

This Lamb could sell his company

~ published May 4, 2010 The Globe and Mail

I was giving a speech in Calgary recently and got completely stumped by a question from the audience.

I was explaining how every industry has an example of a business that scaled beyond the owner by focusing on something that is teachable to employees, valuable to customers and repeatable enough to create a recurring stream of revenue.

I shared examples from the automotive sector and professional services when a woman in the back row raised her hand and called out, “I’m a real estate agent — is there anything I can do to make my business more sellable?” »more

GM, Chrysler: How not to build a valuable company

~ published May 5, 2010 The Globe and Mail

Selling cars is a tough way to make a living.

Volkswagen — arguably the most successful car company in the world — has a market capitalization of around 29 per cent of revenue.

I bet you’d like to get a little more than 29 per cent of revenue for your business when you’re ready to sell. Yet Volkswagen, the proud owner of brands such as Audi and Bentley, is not even getting one times revenue for its business. Not even close. As taxpayers, our collective investment in GM would fetch an even lower multiple, no doubt. Cars make for a horrible business, but they offer cautionary lessons for anyone thinking of building a company they’d like to sell one day. »more

Do your salespeople consistently disappoint?

~ published May 6, 2010 The Globe and Mail

Have you ever had trouble finding good salespeople for your business?

In my market research company, I used to churn through salespeople. I could never understand why they struggled so much. They did a good enough job arranging meetings but they would freeze when they met customers, asking only a rote set of novice questions or wasting time discussing sports.

Inevitably, they would come back to the office missing a critical piece of information needed to write a proposal. »more

The Importance Of Making A Product

~ published May 13, 2010 Forbes.com

I was sipping a tall Americano at the Starbucks on University Avenue in Palo Alto, Calif., when I overheard the conversation beside me:

“Our business is worth four times.”

“Four? I think we’re worth more like five or six times.”

I assumed they were using the typical valuation formula employed by most buyers: a multiple of earnings before interest, taxes, depreciation and amortization (EBITDA, to finance types).  »more

Squeezing the Best Valuation Out of a Buyer

~ published May 14, 2010 Inc.com

I recently had coffee with a business owner who has built a successful advertising agency. He has grown his business each of the last three years to the point where this year he expects to generate $1,000,000 in pre-tax profit on $6,000,000 in revenue.

Such success can often come from a kind of single-mindedness. Indeed, the server hadn’t even taken our coffee order before the business owner got down to the reason for our meeting:

“What do you think my business is worth?”

His eagerness was understandable, but valuation is a complex game. I pushed him to tell me what he thought his company could garner. He had heard that marketing services businesses were going for between “four and five times,” by which he meant four to five times earnings before interest, taxes, depreciation and amortization (EBITDA). »more

I am happy to announce that Built To Sell is now available for your Kindle via Amazon.