Succession planning, whether not to sell your family business, and if so when to sell are among the most important decisions family business owners have to face. For some founders who have built their business up from scratch, a “family business” can only exist with a family member at the helm, and if the next generation are not able or more importantly willing to do the job it could result in the owner considering putting their business up for sale.
Market considerations can, to an extent, dictate the timing of your decision, but there are also internal forces that are equally important when it comes to planning, which are more under your direct control.
It is important to be aware of the factors that can propel a discussion about selling your family business to the top of the agenda. If you want to start planning, the first task is a meeting of the owners.
The two starting questions that you need to come to agreement on are:
Does the next generation of family have the interest and talent to become managers? If not, do we want to become family owned but not family run?
Do the owners have financial security independent of the business and if not can this be achieved by harvesting wealth from the business without selling it?
If the ultimate decision is that a sale would be the best outcome for the business then the following issues need to be considered:
Valuation: It is important to understand what your business is worth, which means paying for good advice. It can also be a bit of a reality check on what you can expect to receive for the business.
What are your non-negotiables: These may include commitments by a purchaser to preserve a brand or company name, to protect jobs or not to remove the business from a certain area. Initial non-negotiables may become negotiable in a sale process because there is usually some gap between your best outcome and the best possible outcome that can be achieved in all the circumstances. However, the wise seller will always start out by identifying their best outcome.
Avoiding sellers’ remorse: Whether you’ve started a business or taken over from your relatives you will have devoted a major part of your energy, passion and commitment to nurturing and developing the business, and so letting go may not be easy. Feelings of sadness and remorse can be compounded by a worry about what you will do next with your life. Therefore before you decide to sell, think about what you’ll do afterwards, which could involve investing in new businesses or pursuing opportunities like philanthropy.
Purchaser diligence: In the sale process it is common for the purchaser to carry out due diligence on the sellers, but in the sale of your business you may have such an emotional attachment to it that you want to carry out diligence on the prospective purchasers. For example you might want to find out how any previous acquisitions they have made have worked, or visit one of their sites to see how their workers feel.
Negotiators and communication: If there are several family members selling the business you might want to appoint one as the main negotiator with authority to act on behalf of the others, but also the clear responsibility to report back regularly on progress with the sale process.
Whichever way you reach the point of considering whether or not to sell your business, hopefully the considerations above will help you to make the right decision.
