PEMBROKE, Mass. — You’ve owned your Laundromat business for 35 years. You’re at the age when most of your friends have retired. You have family health issues that occupy quite a bit of time. Finally, you have a son or daughter who would like to take over the business.
How do you go about making a successful transfer of ownership? It is not like a sale of a business, in that you will not be totally removed. For instance, you will get together Sundays and he/she will discuss Laundromat issues. Finally, you will be receiving money from the transfer, and want to make sure that flow continues. Otherwise, five years from now, you will be back running the show. And that is the last thing you want to do.
So you have a son who wants—really wants—to take over the business. Maybe he will do it in his spare time and it will be a second job for him. Or maybe he’ll make a career switch. Perhaps he’s helped you over the years. At any rate, he knows what he’s getting into. For example, he knows that it is a seven-day-a-week activity because someone has to collect the money. He understands that some mechanical expertise is mandatory. Obviously, this transaction is “full disclosure;” there can be no secrets.
A second consideration is that you feel your son is up to the challenge. He has demonstrated the ability to work hard and to pay attention to details. He has shown prudence in his financial dealings. He has the perseverance to make it work over the long haul. If you say yes to all these, move forward. If you say maybe not—he has a history of starting and stopping projects, he lives above his means, he’s overcommitted—then make other plans. Sell the business to an outsider.
The deal might go something like this. You hand over your business, and your son agrees to pay $1,500 a month for 15 years ($18,000 a year). If something happens and your son doesn’t honor the commitment, you can take over the business and sell it if you want.
If you were taking $55,000 out of the business, this means that your son will have to start out drawing $37,000 a year. (Eighteen thousand dollars is for you and $37,000 is for him, totaling $55,000.) It must be crystal clear that he can manage on $37,000. It would be nice if his spouse had a job, so he wasn’t the primary breadwinner. Hopefully, he would improve the business over time, and there will be a higher pullout. At that point, you still get your $1,500 a month while he makes more than the initial $37,000. At any rate, he’ll make more after 15 years. That’s a successful transfer.
Check back Thursday for the conclusion!