Essential Factors to Consider When Selling a Family Business

Timing

Let’s start with that tricky question of “when?” Is it an active market? Has there been consolidation in your sector? These external forces are often not under your control. You are better off evaluating your internal timing considerations, which are more under your direct control.

Ownership

The ideal situation in any family business has always been for it to be handed down to the next generation. You have to consider the alternatives. Do you have to sell the business if the next generation is neither willing nor able to take over?

The business can still be family owned, just not family run. You can recruit outside managers. Meanwhile, the family can still oversee and monitor management. If not, they can remain passive investors. If they choose to remain active, however, there must be a clear separation and balance of power between themselves and those in control of the business. If the family considers none of this viable, then it is probably time to sell.

Risk and Pensions

A common risk faced by owner-managers and business families is that a lot of their wealth winds up in one basket. They tend to reinvest a lot of profit in the business. The senior generation will want to retire and find they do not have enough financial security independent of the business. The difference between selling the business or selling some of their shares will depend on whether any wealth was harvested over the years.

A Sale Meeting

There will have to be a discussion at some point.  These questions should be asked:

1. Why now? The first topic covered in this article was timing. It should be the opening topic of your meeting. To answer the question, follow with the proceeding questions.
2. Will the next generation take over? Do they have the interest and talent to become managers? If the answer is "no," does the family wish to own, but not run the business?
3. What is the business worth? This step is called valuation. If you decide to sell, you need to understand what the business is worth. You may have to pay for this advice. There may be a significant difference between what you expect to receive and the actual number.
4. Are there non-negotiables? These are points on which you will not budge. They are deal-breakers. You may wish to preserve the brand or company name. Protecting jobs or keeping the business in a certain area may be concerns. Start out by identifying your best outcome, but be prepared to negotiate.
5. Can you let go? There is such a thing as sellers’ remorse. You devoted your talent, passion, energy and commitment to a business you either started with family or took over from family. You nurtured and developed it like a child. Letting go may not be easy.

If you have questions regarding your family business or business law in general, contact this office for an initial consultation.