Family is complicated. So it probably comes as no great shock that family can complicate the whole process of selling your business. I’ve seen relatives working in roles they’re not qualified for, divorces between people in top positions in the same company, children who insist their siblings have better jobs than they do or are simply getting better treatment — the list goes on, and this is to say nothing of quarrels over valuation, how to split up assets, etc.
Grooming Family Members
We don’t choose our family, but we can choose how they will or will not be involved with our business. It may be tempting to hire your children for top positions, but unless your intention is to groom a child who’s interested in buying the business someday, it’s better to keep family out of the picture.
If a family member is interested in buying your business and you’ve been grooming them for a decade, go ahead and take a step back. Let them run the business and if they do a good job, are responsible and accountable, you’re in a good situation to sell to them. This situation isn’t common, but occasionally business owners have children who are able and interested in running the family business. If this is you, treat your children like a buyer. While you will likely finance a portion of the sale, keep it reasonable and expect your buyer, even if they’re related, to have the necessary assets.
The Ideal Sale, Family Style
If you have family members who have proven their abilities and make up part or all of your very competent, able management team, a team that has been running your business profitably and maintaining steady growth for several years, you’re in a very good position for an ideal buyout that includes your family.
A management buyout is when an owner sells to a management team who can obtain private equity and make the investment to buy the company. Nearly every private equity firm will invest in a management team that has been running and growing the business and needs a financial partner to help grow it. This is an attractive investment and your management team can expect them to put up all the money for the sale, give management 20-25% and keep 70-75%. The result is an ideal sale. You, the owner, move on from the business with the sales price in your pocket. Your management team receives equity and the equity firm has an excellent team of people already in place running the business.
If you’re considering selling your business it would be well worth your time to create a plan that will lead to a management buyout. Develop your management team and you’ll improve your odds of selling.
What does this mean for family? If you have family in your business, carefully consider if they’re right for the role they’re in. If they’re not, replace them or move them into a role they’re qualified for. Any buyer who starts looking at your business is going to see family members who don’t belong in the job they’re in as a liability, crippling your chances of a good sale.
Businesses for sale are beginning to flood the market. Baby boomers are a motivated group who started more companies than any other generation in history, and those who didn't found companies bought them. As this generation nears retirement, the majority of their 12 million businesses will transition. This means there will be plenty of supply without matching demand, so if you want to sell your business within the next two decades, you need a plan that will make your business stand out as a solid investment. So take a long, hard look at the people who are leading your organization. If you have people in the wrong positions—family members included—move them.
Speak with an expert about transitioning your business.