advertisement

Selling the family business: Some important thoughts

Here are 3 key issues to consider before you do

No one can possibly appreciate what it took to build your family business. A lifetime of effort, sleepless nights and tough decisions culminated in the creation of something special.

Maybe the business has survived through several generations. The odds are no longer in favor of the next generation wanting to work in the family business, let alone take on the responsibility of ownership.

And it's not just the family that will be impacted when you sell. Loyal employees have given incredible energy and dedication. A decision to sell affects not only the financial future of you and your family, but the futures of the people who you've counted on and those families that have counted on you.

The truth is that most business owners don't really want to sell at all. You probably still feel young and energetic and most likely still enjoy what you're doing. And the business gives life more purpose and a source of pride. In another year or two, the numbers will be even better. So why not just keep on going for a while?

We talk to entrepreneurs everyday who feel exactly that way. However, it's very important to spend some time with your family members to really understand the potential for continued success under new leadership by the smartphone generation.

Here are a few things understand as you consider the future of the family and the business. Remember the family and the business are two very separate entities.

Here are three key considerations:

1. It's a seller's market: Buyers are very hungry for a quality business. Both strategic and financial buyers are competing to pay top dollar for well performing businesses. They're interested in both owners who are ready to retire and those that want to stay on to help run the business. Deals are being structured every day that allow owners to take a lot of cash off the table and still own a significant minority stake in the business. Will the next generation of your family have what it takes to pay you the true value of the business? Sadly, the statistics are not in your favor. Many family businesses that are sold to the younger generation run into problems and mom or dad end up waiting a long time to be paid.

2. The future is uncertain: Tariffs, tight labor market and many other business risks come with owning a business. Does the next generation want the challenge? The tax cuts had a very nice impact on the value of many businesses but it's not likely there are more tax cuts coming anytime soon. The economy is still strong by most measures, so consider the adage sell while the selling is good. Your family members may not like the idea of taking on substantial debt to pay out mom and dad. Also, many second or third generation family members admit they don't want to be the family member at the helm when the family business gets in trouble, as may happen, and ruin the family legacy. If your business is performing well today, and you think you'll do even better in the coming years, it's important to think about the effect that external factors may have on your industry and your customers.

3. Family harmony: The family dynamic changes significantly when a son or daughter owes mom and dad money. And in a family business transaction the numbers will be large. Sit down sooner than later and find out if the succession plan includes and enthusiastic family member or two. And who in the family will be in charge? Businesses run by committee are likely to create family tension in and out of the office. Address the leadership and make sure the family members are comfortable.

Now is the time to prepare your company for the inevitable transition so you don't miss this window of a Sellers' Market. In the end its always best to maximize the value of a lifetime of effort and share the rewards with the family. If nothing else, you will not be ignored at the dinner table.

• Eric Lundstrom is founder of Focus Capital Advisors Inc. in Downers Grove.

Article Comments
Guidelines: Keep it civil and on topic; no profanity, vulgarity, slurs or personal attacks. People who harass others or joke about tragedies will be blocked. If a comment violates these standards or our terms of service, click the "flag" link in the lower-right corner of the comment box. To find our more, read our FAQ.