Deciding whether to sell your family business is a once in a lifetime event. Should you sell the whole or part of the company to outsiders? Are the 2nd or 3rd generation family members good options? Are the family members up to the task? For instance, the subsequent failure rate of generations two and three is very high (70 and 88%, respectively).
The decision to sell a family business is among the most difficult and important decisions of your career. After a lifetime of hard work, owners wrestle with a range of emotions and questions. Question #1- Is my retirement fully funded?
While considering the decision to sell their business, many owners are currently “kicking themselves” for missing the giddy prices of 3 years ago. However, deal multiples are again rising and private equity and middle-market companies have the “dry powder” and want to do deals.
Two mistakes business owners make are that they think they know who the “best” buyer is for their business and that they only negotiate with that one entity. In making these mistakes, entrepreneurs negotiate on their own and inevitably take their eyes off the day-to-day business affairs. In the vast majority of cases, however, this strategy is doomed to failure. Their belief is usually based on prior conversations or non-solicited expressions of interest.
In the great majority of our transactions involving this type of “early” interest, managing a competitive marketing program has resulted in a sale to a different buyer with a better deal than the initial party. Without competition for your business, buyers will rarely serve up their best proposal and, as a result, the seller’s negotiating leverage is minimized. An Exit Strategy professional also enables business owners to stay focused on running the daily operations of the business during the sale process. “Last Minute Surprises” lead to reduced value. It is critical that the owner concentrates on the daily business operations.
Despite this tough business environment, Exit Strategies need to be implemented and executed for millions of business owners. How will their decisions impact their family and their personal well-being? What will become of long-time employees, customers, suppliers, and other important stakeholders? While the answers to these questions are sometimes conflicting and confusing, one thing is certain: when evaluating whether to sell their family business, entrepreneurs need to develop a proactive and systematic Exit Strategy. In doing so, they will receive maximum, post-tax dollars for a lifetime of hard work.