Things to consider if thinking about selling the family business

Do ask, “Dear, what do you think?”

In their focus on answering the question of whether to pass a business on to children or sell to a third party, owners often overlook the opinion of their spouses. Few opinions are more critical to the ultimate success of a business transfer. Have a frank discussion with your spouse about what s/he wants to see happen to the business and save yourself time and effort and maintain family relationships.

Do look beyond the front door

Before deciding on a successor, look at your industry. Are changes happening or predicted that make selling to a third party the best option for your business and family? Third parties with greater resources may be able to take your company to a level that family members cannot. If you transfer a business with a dim future to family members, are you doing them a favor or saddling them with a burden?

Do know thyself

Not every owner is capable of investing the time and energy a transfer to family members requires. Ask yourself if you enjoy grooming a successor or are you better suited to the ‘quick hit’ of a sale to third party? Successful transfers to family members take three to five years, (assuming all goes according to plan) while a sale to a third party averages nine to twelve months. Your involvement is key to the success of the transfer of your business.

Do dance with the one that brought you

If you’ve done the work necssary to make your company valuable, you have created a management team capable of running your company without you. Think for a moment (or two): Would non-family members of that team resent a family member stepping into your shoes? Could they work with and for one of your children? If not, bringing a child into ownership only to have your entire management team jump ship will sink your plans for a successful exit.

Do make a map

There is no reason for you to make these decisions or take this journey alone. Competent exit planning advisors can help you to create an Exit Planning Roadmap based on your goals that takes you from where you are to where you want to be. Along the way they’ll help you to build and protect business value, implement tax mitigation strategies, put in place contingency plans, and coordinate your estate plan with your plan to sell or transfer your business. Your business is your most valuable asset so get the expert advice you need.

Do assemble your dream deal team

No one type of professional advisor can do all the tasks involved in creating a successful exit. Along with an exit planner, you’ll need a CPA, attorney and, if you sell to a third party a transaction advisor. If you assemble that team well in advance of your exit, you will see how well they work together to reach your goals. You’ll see if they can pull together in the same direction or if their personalities or egos clash. Most important in a sale to a third party, you’ll want to see they can take roles assigned to them or of they are only comfortable in starring roles. Assembling the right advisors is key to the success of your business transfer regardless of who you choose to succeed you.

Do not attempt to turn a sow’s ear into a silk purse

As tempting as it is in the years leading up to a sale or transfer of a company to inflate sales numbers by increasing the number of low margin transactions, don’t do it. A third party buyer will discover this all-too-common ploy and will redouble its efforts to uncover any other cosmetic attempts to artificially improve your company’s numbers. Worse, your actions make your statements and data suspect in a buyer’s eyes. Keep your numbers clean.

Do not cut corners where it counts

In a transfer of a business, credibility is hugely important. You will need credible financial records to tell the story of your company to either a third-party buyer or to the bank financing a child’s purchase. In the years prior to a transfer, have your CPA prepare your financials. Clean up your company’s balance sheet and P&L statement by removing all personal expenses.

Do not forget that loose lips sink deals

Do not discuss your deliberations about selling or transferring to family members with anyone but your spouse. No employees, customers, vendors or other family members should have a clue that you are considering a sale until you’ve talked to your advisors. Employees, customers and vendors can use rumors of a sale to take their careers or business elsewhere. Once you share your thoughts with others, you cannot control the information. Do you want your competitors to know you are thinking about leaving? If not, keep your plans to yourself.

Do not guarantee it

If you are in the position of personally guarantee anything, (bonding, loans, leases) find other means of satisfying those obligations. You want to remove any personal guarantees of corporate liability in the years prior to the sale or face the unpleasant task of doing so at closing.

Do not make promises you can’t keep

Many owners make “sweetheart” deals with customers or vendors without thinking about whether a buyer could or would want to do the same. Due to their very nature, sweetheart deals rarely survive a transfer in ownership. You will have to disclose deals of this type during the sale process so your choice is to either eliminate them before entering the marketplace, or put them on paper so all parties understand the terms.