What does any business owner want? To oversimplify, he or she wants independence, above-average income, a career of building something and an exit strategy that includes realization of personal wealth.

It's a relatively straightforward desire that can become complicated in a family business in which the owner's children are or might become employed. A family business faces the issues any private business faces in addition to issues unique to the family situation.

How Do Business Owners Retire?
Business owners build value through a lifetime of hard work. This work culminates when the value inherent in a successful company is converted into personal wealth for the owner through a sale.

Possibilities include going public, selling to a strategic acquirer or investor, or selling to employees through an employee stock ownership plan. All result in an exit for the owner with the liquidity to fund retirement. The sale is a "liquidity event."

While most business owners sell, family business owners very often transfer the company to their children. Their thinking is that a family business should stay in the family and that this is the best way to support the launch of their children's careers. However, it seriously complicates the matter of retirement.

When a family business is transferred to the owner's heirs, there rarely is a liquidity event. It is not unusual for a family business owner to lack wealth independent of the company. Typically, earnings have been reinvested into the company in order to help it grow. Even if the owner has taken a healthy salary over many years, it may have been insufficient to create independent wealth.

We strongly believe that the best solution is to sell the family company. That offers the most options to meet the owner's needs and his or her children's needs. It also seems to avoid the thorny issues that might arise with a straight transfer to the children.

Why Sell the Family Business?
Based on the considerations presented above and our experience assisting with the transfer of many private companies, the ability to meet the most needs comes from selling the company. That allows the owner to provide for retirement and, if he or she wishes, can also provide one or two ways to help the children get started on their own.

For example, the owner might sell 75 percent of the company to a strategic acquirer (which allows him or her to realize the greatest value and therefore the highest price) and hand the remaining 25 percent to the children. The owner will have realized a liquidity event that allows a fully funded retirement. Yet the children have part ownership, the chance to prove themselves under new majority ownership, and the benefits from pride of achievement without parental involvement.

The owner might also simply sell the company in its entirety, achieving the necessary liquidity event for retirement. And he or she can always give the children some of the sale proceeds to launch their own ventures. Consider it seed money or bridge money to get them from the nest into their own, self-made worlds.

Why Selling is Better
Transferring a business to the children can impacts their careers in ways that might not prove desirable. While these don't always arise, they merit advance thought.

For example, if the owner's children, in effect, inherit the company, they may not have the chance to prove themselves and build the respect they want for themselves.

If the children go out on their own, they would have independent opportunities to build character and self-respect. They would have experienced success and failure, hopefully succeeding more often than failing, and become stronger persons in their own right.

Contrast this with the birthright scenario. Children of business owners may believe that they have no option. They accept a role in the business, often the path of least resistance, even if it is not their dream.

Meanwhile, if an owner transfer the business to his or her children, where does the financial support for the golden years come from?

The most obvious answer is to continue to draw an income or payments from the business. But this places an additional financial burden on the company. If the company is a small business, it must be increasingly successful in order to accommodate this additional burden.

In addition to the family stress this could conceivably cause, in a soft economy or down business cycle, how are the children going to look at the cost to the business attributable to the parents?

How to Sell
The way to sell a family business is the way to sell any business. Sell the future to a strategic acquirer.

Make the business a long-term play. Be sure the future of the business is bright and can be substantiated. Develop the management team and other infrastructure to support the future. (Another potential issue in a family business is the management skills of the children.)

Understand the strategic value of the company by understanding the mind of a buyer. Look at it in terms of its potential if someone else with greater resources owns it. Consider who wants what it has and can do more with it. An outside advisor can be very helpful here.

The Family Business is Still a Business
Even if the business is a family business and the owner's children are working in it, the owner should look ahead as any private business owner would. It could be an astute business decision to sell the company to fund retirement while still planning to provide for the children.

Given these compelling reasons, a sale transaction may be the best exit strategy for a family business owner and his or her children.

Phillip L. Currie is Managing Partner of Shoreline Partners LLC, a San Diego-based, middle market investment banking firm that handles sales of privately held companies with $10 to $200 million in revenue and acquisitions for public companies. Currie can be reached at 858/587-9800 or via Email.