Selling Your Family Business: Where to Start
Determining whether to sell a family business is a tough decision. In fact, whether you’re running a construction company, a dental practice, a software company, an HVAC company, or any other type of business, that company may be:
- A generations-long enterprise that has been passed down along several generations
- A business you started with the intention of passing it along to the next generations when you retire
However, keeping the business in the family isn’t always advantageous. Sometimes, family members don’t have the capabilities to run the organization or simply don’t want to.
If your family members don’t possess the necessary skills or desire to take over the company, that’s okay. Sometimes, people need to follow their own path, and it isn’t the path of the family business.
Before embarking on the sale of your company, you’ll want to have a thorough discussion with all of the stakeholders – the current business owners, your family members, and critical employees who may feel an impact from the sale.
Discussion with Stakeholders: Why You Want to Divest the Business
You’re likely not making the decision to sell the business lightly. You may be planning for retirement or face an illness that makes it hard to continue managing the organization. You’ve probably already spoken with family members disinterested in taking over the company’s affairs.
However, you’ll want to clarify these issues with all the potential stakeholders in a meeting. If there are owners besides yourself, they may express interest in purchasing your family’s stake from you to avoid bringing in someone they’re unfamiliar with.
If you are the company’s sole owner, you should let critical employees know of your plans to sell. They might express interest in purchasing the company or taking over crucial leadership roles.
If your employees are aware of your plans, you can get them on the path to managing the business in your absence, potentially rewarding them for their hard work over the years with your organization.
Get a Valuation of Your Business
Before starting the sales process, you’ll want to know your company’s value. Contact an organization that specializes in business valuations. Typically, accounting and assurance firms like Deloitte or KPMG provide valuation services, but you may find a local firm willing to handle the job.
The company you choose to handle the valuation will carefully review your accounting records, customer contracts, and foothold in your local market sector. Once they complete their analysis, they’ll benchmark your organization’s worth.
You can use their valuation when you’re considering offers from potential buyers. Valuations prevent you from accepting too little for your company’s value and give you the insight you can use to improve the market value of your company.
Determine Whether You Have Any Non-Negotiables for the Sales Process
Before beginning the sales process, decide whether you have any factors you’re unwilling to bend on in the event of a sale. For instance, you may require that a buyer holds onto crucial employees that have been with you for a long time or that they keep the company’s name.
Some business owners prefer that buyers not relocate the organization to another location for a set period.
Whatever non-negotiables you have, write them down. However, realize that you may have to make accommodations for some non-negotiables to get the best purchase price.
Do Your Due Diligence on the Purchaser
All investors perform due diligence on their potential investment, but owners can perform similar diligence on their buyers. Performing due diligence is especially important if you won’t receive an upfront payment from your buyer and your return depends on the organization’s future performance.
You should look at prior acquisitions of your buyer and whether they honored commitments to other sellers, such as ongoing payments and handling of non-negotiables.
You’ll also want to ensure the buyer has the financial capability to purchase your business. If they don’t have the capital, you certainly don’t want to make the sale.
You should consider how much you trust the purchaser. If they don’t leave you with a positive feeling in your gut, they might not be the right ones to buy your business. Remember, there are other buyers out there. It may take some time, but it’s worth finding a purchaser you feel comfortable with.
Find a Business Broker or Negotiator
A sale of a business is typically very complex. Experienced buyers have lots of negotiation tactics they may employ to get you to agree to a lower price for your business.
Obviously, selling your company for less than it’s worth is not advantageous to you. Rather than getting caught up in the negotiation process, consider asking someone else to handle it. A business broker may be able to counter a buyer’s negotiation tactics and ensure you receive appropriate compensation for the sale.
If you don’t have any connections with a business broker, consider hiring a lawyer specializing in business acquisitions. Your lawyer can represent your best interests and ensure the purchase proceeds without a hitch.
Seller’s Remorse Is Real, but You Don’t Have to Give In to It
Sometimes, owners express shock, anxiety, and depression following the sale of a business. After all, running the organization was probably the center of their life for many years. No longer having the responsibility for ensuring its regular functions can require a significant shift in mindset.
Business owners can reduce the chances of developing seller’s remorse by having some new responsibilities they’ll handle in the months after they leave the organization.
For instance, a company owner could set up some time for volunteering for something they’re passionate about or plan a few trips they’ve always wanted to take.
Over time, the seller’s remorse will decline. Staying busy in the first few months following the sale can help alleviate concerns and help business owners find new outlets for their time.
Selling a Family Business Presents Opportunities
Deciding to sell your family business isn’t an easy decision. You’ll need to decide on the right time to sell and discuss the impacts of the sale with potential stakeholders. You’ll also want to find a buyer who aligns well with your expectations for running the business in the future.
While losing your business may be hard at first, realize that it’s part of the business life cycle. At some point, you won’t be able to run the business. It’s better to start the sale process early rather than wait too long and be unable to enjoy your golden years.
Want to Sell Your Family Business Quickly and Discretely?
Cowen Partners’ approach is notable because we are one of the nation’s leading executive search firms and are in touch with potential buyers daily. Our Partners come from a diverse set of backgrounds and skills, ranging from business owners and entrepreneurs to CPAs and financial analysts. This diversity of talent enables the team to guide our clients with firsthand knowledge and experience through all phases of the business processes of building, buying, and selling.
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