Selling a business can be difficult at the best of times, but when it comes to selling a family-run business matters can become even more complicated.
There are three million family businesses in the UK and it would be overtly romantic to believe each of these will be passed down from generation to generation indefinitely; for many businesses the time will eventually come when the owner will look to sell up rather than hand down.
But why would someone look to sell a family business and, more importantly, how can they do so in a way that achieves maximum value while minimising conflict and stress?
There are a number of reasons why someone might choose to sell a family business. One is that they might have ambitions to pursue a different career path away from what their elder relatives have done.
Another reason is that they may lack the necessary skills or skilled employees to continue to run the business – this is particularly common in more highly skilled sectors such as engineering or manufacturing, which require technical training rather than just the right surname. Alternatively, if there is no obvious successor or there has been a rift within the family then a sale is often the best option.
Aside from these family-orientated reasons, another common reason for selling a business is that growth is no longer viable with the finances available. Without capital to invest, growth can stagnate and – especially if turnover is not high enough to support the family running the business – the owners might be left with little choice but to look for a buyer who can take the company forward.
Of course, the reversal of this can also be true; a family business could be performing extremely well, therefore attracting the attention of potential buyers. While one might wish to keep a business within the family, should it be trading strongly it could be worth cashing in to ensure an optimum price.
Whatever the reason, for those who have reached the decision to sell their family business, it is important that they act in good time. Waiting until retirement or an unforeseen circumstance forces the sale will rarely result in the best price. Instead, a carefully considered, diligent approach is key to ensuring the business is passed on to the right person at the right price.
Timing is critical for any sale and as such compiling a business plan with an exit strategy in mind is always advisable. Within a family-run business it will be important to ensure that all stakeholders – family members – are involved in the decision-making process. Family businesses will, in many cases, be irrevocably linked to the history of the family itself, so it is important that there is consultation with those it is likely to affect at the very start of the process.
Once this has been completed the focus can shift on to the more technical aspects of the sale, namely working towards getting the maximum value of the family business. Crucially in this process, emotion must be taken out of the equation – happy memories and proud traditions might matter to the seller but they are going to be far less valuable, in monetary terms at least, to any potential buyer.
The owners are advised to stick to the facts and what is important in their particular sector to ensure the business is marketed in such a way that it will capture the interest of buyers. Concentrating on the most attractive features of the business and any synergies with competitors is the best place to start.
Standard procedures like documenting intellectual property and having all the accounts in order will enhance a seller’s chances of securing a sale. Moreover, the seller must remain realistic over the price and not allow sentiment to cloud their understanding on what is a fair valuation of their business.
Another key challenge will be choosing the right person to sell to. Although emotion must be removed when presenting the business to buyers, it is rare that a family-run business will change hands without the seller caring about who takes it on. For example, preserving an identity or continuing to serve the existing customer base might be of particular importance – sellers must consider their priorities and work towards securing a buyer they believe will take the business in a direction they support.
Once these fundamental steps of devising an exit strategy, establishing how to market the business and prioritising what to look for in a buyer have been completed then the family can set about the process of actually selling the business. This will involve choosing where to list the company for sale so it will be seen by enough of the right people.
It will also likely involve getting a trusted adviser to help with what can be a testing experience. When choosing an adviser, it is integral that the family opts for someone they like and can work closely with, as there will be a lot of time spent between the two parties.
Furthermore, although ‘patience is a virtue’ might be a commonly spouted cliché, it will certainly ring true when selling a business, particularly a family business when it becomes extremely difficult to separate one’s private and professional life.
Appreciating that selling the company will take time is essential, as is understanding that any completion date will likely be missed as the negotiations and paperwork are finalised. Accounting for this will help ease the frustration of the sale process while also alleviating the strain it can have on the family life away from the business.
Ultimately, when selling a family business, the key to achieving a successful sale comes from striking a balance between the family and the business. Making sure the family is involved in the sale and that any concerns over the legacy of the business are addressed will help with the emotional side of the process. Beyond this, taking a diligent, patient and professional approach – with the help of a trusted and experienced adviser – will enable the family to get the best result for their own future and the future of the business.
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