Selling the family business

Category: Preparing to sell a business

Wed 5th December 2012

Selling the family business: A means of passing the family asset to the next generation without them having to take over the business

Owning and running a family business has many advantages both personally and for the business compared with other enterprises. Having family members as key personnel in your business presents many benefits such as common values, strong commitment, loyalty, stability and flexibility on costs and pay. These benefits result in a powerful and personal bond between the family and the business, its employees and its customers. Decisions are based on building long term growth in order to provide an asset that can be passed on to future generations.

But what happens when you reach retirement age? What happens if the next generation is not qualified or indeed not interested in taking over the running of the business? You may have to look outside the family for a suitable successor. In a changing world with so many life choices the next generation may well wish to invest their efforts in a new venture suited to their own experience, interest and capabilities.

Selling your business offers a means of extracting the value that you have developed in the business over the years which if done correctly can be used to fund a new venture for your children.

 

Preparing your family business to sell for its optimum value

But how do you value your business? How do you achieve the optimum value? There are many ways to value a business which we could discuss at length. However whatever the metrics, the key is to prepare your business such that it is of value to an outside buyer.

Many of the benefits of a family business are the antithesis of what represents value to an outside buyer; for example how will the buyer replace the goodwill and bond that you have developed with your customers, suppliers and employees? What if the business cannot function day-to-day without your knowledge and expertise?

It is worth acting on the following top five tips in order to maximise the attractiveness of your business:

 

1.            Ensure that the revenues and sales process are not dependent on you

Ensure that someone-else within the business is able to perform the complete sales function from initial enquiry, through bid and quote, to winning the contract.

Businesses that depend on the owner to win new sales (or indeed the strong relationship between the owner and existing clients to maintain recurring business) will represent a major risk to buyers.

If you do not have a sales process, develop one. Have one full time member of staff attend initial sales meetings with clients and take on your current roles in the process.

 

2.            Make sure the business functions without you

A good buyer is not looking to buy a job. Ensure that day to day issues are not down to you to resolve. The more time you spend in day to day activities in the business, the less value it represents to the buyer. If the buyer has to work full time in the business then he/she will have to pay themselves a salary.

Recruit or promote a suitable successor, put a management structure in place, or as a last resort consider providing on-going consultancy.

 

3.            Pass on your “technical expertise” to the business

Consider how a new owner without as much experience or technical know-how as you will run your business. Again recruit or promote a suitable successor, put a management structure in place, or as a last resort consider providing on-going consultancy.

By opening up the availability of your business to buyers that do not have the same sector expertise, you will increase the number of potential buyers, and therefore increase the number of offers.

It will also pay to develop a “hand-over” plan to transfer the business relationships to the buyer in an ordered way that will not disrupt your clients and cause them to consider other suppliers.

 

4.            Ensure that employee and suppler contracts are in place

One of your key assets is your staff and the buyer will want to be confident that they will stay with the business after your departure. A good track record of staff retention as well as appropriate contracts will do much to satisfy the buyer of the ongoing commitment of the staff to the business.

 

5.            Set yourself reasonable expectations

The emotional value you attach to the business may be higher than an outside buyer is prepared to pay for the financial return that your business offers. You must be prepared to think realistically, otherwise you simply will not sell the business. Think of your business from the buyer’s point of view, make it easy for them to see how they can make a return on their investment and you will achieve the optimum value for your business.

Remember the best deals are when both sides win. Help the buyer make a success of your business.

 

In conclusion, preparation is key to achieving the optimum value and realising a family asset that can be passed on to the next generation to develop however they wish to develop it.

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