- September 6, 2024
- Posted by: Business Brokers & Consultants
- Category: Seller Articles
Selling a family-owned business presents unique opportunities and challenges. It can be complicated by deep emotional ties and the history typically associated with such businesses. The more stakeholders, the more complex the decision to sell and process of doing so becomes. Even so, family owned business have options for the transfer of ownership. This article presents several options to consider, depending on your goals, the business’s circumstances, and the family dynamics.
Family Succession
Keeping a business within the family preserves its legacy. It may also ensure continuity if the successor is already involved in the business. However, this option is only feasible if there are family members interested and capable of taking over. It can also lead to conflict within the family if not handled properly. Here, a Certified Business Valuation is always recommended.
Where there are multiple children or “heirs” to a family business, it may be best to formally “sell” the company to those heirs who are capable and desirous of taking over. If done while the founders or current shareholders are still living, they are able to make their wishes known, and the benefit of the sale falls to first to them. After all, just because one generation is ready to retire does not mean that they must or should simply hand over ownership to the next without consideration.
Sell to Key Employees or Management
Company’s that owe their success largely to the goodwill, name recognition, and expertise associated with team members are good candidates for either a Management Buy Out (MBO) or Employee Stock Ownership Plan (ESOP). Both are especially suitable for companies that require minimal risk of disrupting business operations during the transition and continuity for clients and employees. Architectural, construction and engineering companies are all good examples. However, this is a good option for any company that is bound by bound by long-term, non-transferable contracts with its clients, and would prove especially problematic to sell on the open market.
Hire a CEO
Hire a CEO to manage the business and the exit of the family members key to its operations. This strategy allows the owner to retire and live off of company dividends. It often delays the sale of the company for years, and ultimately better positions it for a future sale.
Sell to a Third-party
Sometimes, selling to a third-party is the best alternative. Market competition offers and a broader pool of buyers with strategic and financial motives. These buyers may be willing to pay a much higher sale price than employees or family members.
Some family-owned businesses, are candidates for an initial public offering (IPO). Companies with revenues of $100+ million are seen as a potential candidate for IPOs. An IPO can receive a high valuation; however, it is important to note that management will need to remain with the company.
Business Brokers & Consultants Principals are experts in helping family-owned businesses chart the best path forward. No two family-owned businesses are the same. Our experienced Principals can evaluate your business and provide valuable insight about the sale option that makes the most sense for your family owned business.
Copyright: Pamela Florence, Business Brokers & Consultants, Inc.
This post is based on Options for Family Owned Businesses which appeared on Deal Studio – Automate, accelerate and elevate your deal making.