There’s No Business Like a Family Business

Family businesses are different, for many reasons. Sometimes there are advantages to working with relatives; other times, drawbacks. One specific disadvantage of the family business is that familiarity can lead owners to be more relaxed and important issues relating to the future can be overlooked.

Family Business Succession

Inc. has reported that, according to the U.S. Bureau of Census, approximately 90% of all businesses in the U.S. are owned by families. These family businesses generate more than 50% of the U.S. Gross National Product (GNP) and provide half of the nation’s jobs. Despite the number and importance of family businesses, relatively few are properly planning for what will happen when it comes time to sell. According to a MassMutual Life Insurance Company survey, discussed here,  60% of family-owned businesses do not have a written strategic plan, which is a recipe for confusion, and potentially disaster, when it comes to the issue of succession.

Besides lack of strategic planning, there are other factors that may complicate the sale of a family business. For example, the MassMutual Life Insurance Company survey indicated that 90% of family-owned businesses intended to stay family-owned in the future. But, according to Inc., fewer than 30% of family businesses survive the transition from the first to second generation, and only 13% remain in the family for more than 60 years.

Things to Consider

Because family businesses are unique, there are several important factors that business owners should attend to when considering a sale of the family company:

1. Confidentiality should be placed at the top of your “to do” list. When it comes to selling a family business, it is vital that confidential is strictly observed.
2. Remember that it may be necessary to lower your asking price if maintaining the jobs of family members is a key concern for you.
3. Family members who stay on after the sale of the business must realize that they will no longer be in charge. In other words, after the sale of the business the power dynamic will be radically different, meaning that family members will now have to answer to new management, outside investors, and an outside board of directors.
4. Family members should appoint one family member to speak for them in the negotiation process. Failure to do so could lead to confusion, poor decision making, and, ultimately, the destruction of deals.
5. When hiring a team to help you with selling your business, it is critical that your lawyer, accountant, and merger and acquisition advisor are all experienced and proven.
6. Don’t hold meetings with potential buyers on site.
7. Every family member, regardless of whether they are an employee or an investor, must agree with regards to the sale of the company. Again, one of your primary goals is to avoid confusion.
8. Family employees and family investors must agree to the sale price, or there could be problems.

Working with an experienced merger and acquisition advisor can offer family businesses many benefits, especially when it comes to selling.  M&A advisors understand what is required to successfully carry out a sale. In addition, the seller’s being able to point to an advisor’s past success will help reduce family member resistance to adopting the strategies necessary to successfully sell a business.

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Copyright: Business Brokerage Press, Inc.
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