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FAMILY BUSINESS CONSULTING
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A recent study revealed between 80 and 90
percent of US companies are family businesses, and over the course of the next
decade, more than 40 percent of those companies’ top executives will retire (Family Business Review). What does this
mean? Family business succession will become a major issue for thousands of
enterprises and families in the near future.
“With this massive change on the horizon, it’s safe to assume many of
these companies will address succession by selling the family business or
transitioning to the next generation. In addition, many family businesses
contemplate a sale for myriad other reasons besides
succession,” (MiamiHerald.com).
Regardless of whether selling is or isn't the right decision,
the process can be a source of tremendous stress and family conflict. Accordingly,
it is important for families to have trusted advisors involved in the process
to help family members understand the implications of a sale and how to make
the most of it.
Here are five questions, provided by the
MiamiHerald.com, to help your family-owned company navigate the prospect and
process of selling.
Why are you considering a sale?
It’s important to identify the reasons why you
want to sell the business, because the motivation for a sale can have a large
impact on the best course of action to take. For instance, if there’s not
another family member or generation in line to take over the business, then a
sale may be the best way to monetize your asset. By contrast, market
opportunities may be the driving force, making the urgency for a sale more
present. Other criteria could include divorce, death, family members’ seeking
alternative career directions, or tax and estate planning considerations.
Is an outright sale the best choice?
Before
hanging the “for sale” sign, consider strategic alternatives. In this regard,
consult with your accountant, your attorney, or an investment banker. Depending
on your goals, there may be a number of other options available to meet your
family’s objectives.
For
instance, recapitalizing the company could provide cash to the exiting
generation (or exiting family members) while allowing the remaining family
members to continue in management roles. If liquidity is not an issue, then
identifying non-family members for executive management positions can address
succession issues while allowing the family to retain ownership (and therefore
the cash flow). And of course, if a sale does make sense, then be certain to
engage the appropriate professional advisors to ensure you realize the greatest
possible value from your family business as early as possible.
Are
your decisions driven by emotions or good business sense?
Despite
the prevalence of family members that work together, few can avoid the
potential divisiveness that money and business dealings can have on their
relationships. Whether it’s a case of siblings facing off with each other,
cousins in conflict, or parents and children disagreeing, the emotions of a
family quarrel can lead to bad decision-making that can have catastrophic
economic impact on a family business. I have seen this more than once: As a
result of ego clashes or a lack of common sense, much money is left on the
table. And once again, one of the best defenses a family can take is to engage
the right assistance. A corporate psychologist, family therapist, or
professional mediator can often prevent emotions from hijacking a family
business’ potential and ensure that equity and “cool heads” prevail.
Emotions
can also affect owners’ sense of what a business is worth. While your business
is your baby, prospective buyers are often uninterested in the characteristics
you consider most significant. Many buyers are extremely disciplined in their
approach to value. Look to your advisors to provide an accurate valuation and
to negotiate without bias.
Are family members on the same page?
Families sometimes struggle during a sale because some
members are risk takers and others are more conservative. One owner (or group
of owners) may want to hold out for a premium price while another owner may
want to take the first offer. As a seller, the investment bankers representing
your company should engage all of the selling parties before going
to market to ensure that everyone is on the same page, speaking with one voice
and mindful of the same goals. Sometimes it might even be better if one family
member buys out the other if that person will be an obstacle in the sale
process.
Are you ready for what comes next?
The
excitement of a deal and the lure of what looks like a windfall can distract
business owners from the reality that, after a transaction, they will no longer
own and control their family business. What will you do with your proceeds?
What will you do with your time? Many successful small business owners aren’t
ready to wind down after selling their companies, and they sorely miss the
stimulation of running a company. They still want to be in the game. For other
family business owners, a sale can mean their children, siblings, or spouses
are left without a job. Still, for others a sale can mean their legacy becomes
uncertain.
It’s
helpful to contemplate and visualize how you and your entire family will move
forward after the sale of your family business
