When to Sell Your Family Business in BC.
There are generally two very good reasons to sell a family business.
First, all businesses have lifecycles.
A business that is competitive at one stage of an industry could need a vastly different scale, technology, management skills and style, and capital to compete well in another stage of this “game.”
If a family wants to remain in a particular business (“game”) over several decades, it needs to have the necessary talent, adequate financial resources, and a good measure of flexibility.
For a number of reasons at some point most businesses stop adapting to their industries and die.
Most family businesses that go out of business do so because they become uncompetitive (due to mismanagement, lack of reinvestment or disruptive technology that destroys or transforms industries) or because the family loses interest in the business.
To some extent, this outcome can be avoided with the right actions in the business and family.
The second reason families should consider selling is because families naturally change over decades and generations, in terms of their interests and skills.
And some families grow apart from their businesses and become unable or unwilling to support their companies as owners or business leaders.
You should manage the development of your family and its relationship with your business as best you can and then accept what is real (rather than desired) about your family and the situation you face.
The worst situation is to build something valuable and watch its value vaporize because you are unrealistic about your strengths and the threats you face. And remember, if your family is no longer a good fit with your business, it could still be successful in other activities including another business.
Which means that you should periodically assess the fit between your family and business, which you can do by answering these three questions:
Is the family the best manager of this business?
Is the family the best owner of this business?
Is this business producing adequate returns for the family?
Given how quickly industries are changing, you should do this calculus every few years with the input of close advisors, key owners, and your board.
EVALUATING THE CASE FOR SELLING OR KEEPING the FAMILY BUSINESS
Making the decision to sell or keep a business involves aligning the interests of key players in all three circles of a family business system and typically requires dialogue with the owners (who make the decision), business leaders, board members and family members.
They all have their own perspectives and interests and unique methods of reasoning. You need to understand their interests and motivations for selling or keeping the business.
Sales of family businesses are motivated by many factors, including these:
Financial considerations
Desire to monetize the value of a business
Desire to take advantage of a favorable opportunity (sales price is high; attractive offer has been tendered)
Other good business opportunities that require capital and attention, making the sale of the current business attractive
Performance
Strong business performance that supports a high sales price but may not be sustainable
Weak company performance or equity shrinkage that might accelerate in the future, due to industry or economic factors
Poor dividends threatening family liquidity
Ownership issues
Alienation of shareholders from the business caused by a number of factors
Family strife caused by the business, or family conflict within it
Self-interest (possibly including greed) of some owners, putting their own interests above the interest of the family
Shareholders do not feel respected by management
Leadership issues
No family leadership of the business
The business leader (whether family or nonfamily) is disliked
Family issues
Liquidity needs in the family
Lack of interest in the business by the next generation
Feeling that selling will enhance the family’s image
The company is not following family values or harming the family’s image
On the other hand, families tend to keep their businesses under these conditions:
Financial considerations
Large size of the business relative to competitors
Inadequate sales price
Performance
Strong business performance, business growth, and equity growth
Adequate dividends
Belief that the owners and management can do more to improve and sustain the business and that it can be successful going forward
Ownership issues
The company maintains adequate communication with the shareholders
Shareholders feel respected by the company
Leadership issues
Long history of family leadership of the business
Family involvement in senior management
Family issues
Liquidity is adequate for family needs
Family pride in the business
Family name is connected to the company (e.g. on the door, products)
The company supports family values and the family’s image
Strong interest in the business by the next generation
Long history of family ownership and sense that selling it would violate a family value
Strategic importance of the company to the family’s status and family activities (e.g. philanthropy)
Belief that the family’s wealth is better sustained owning a business than owning financial or other assets
Feeling that selling the business will harm the family’s image
These factors need to be understood in relationship to a valid market price for the business. A high or low sales price can dramatically affect some families’ decisions.
And the likely sales price for the business should be determined using experienced external advisors.
Because families tend to be strongly attached to and sentimental about their businesses, a decision to sell the business generally requires a much stronger motivation to sell the business than to keep the business.
Some motivations are based on factors that are hard to change. Others can be managed or influenced. Consider whether, and to what extent, your motivations for selling or keeping might change if any of the key factors changes. And always consider other factors, not listed here, that influence you
and your family.
Then make the case for selling or keeping as clearly as you can. If you decide to keep your business, you can benefit from the process you just underwent by making it a regular part of evaluating your family enterprise.
PREPARING FOR A SALE
Timing the sale of your family business is a very important consideration. If you want to receive a good price for your family business, the time to sell it is when a buyer is ready to buy it, not when you are ready to sell it.
This is a terribly difficult lesson for owners of companies to comprehend.
They generally time the sale based on their needs, often waiting until the end of their careers, and only after determining there are no possible family successors, before selling.
At that point, there may or may not be a buyer and the business may not be able to be packaged to look like an attractive family business to buy.
Typically, if an industry is consolidating, you don’t want to be the first or the last company to sell and you should be closer to the front end of an industry roll-up than the tail end. T
This requires an understanding of what is happening in your industry and skillful negotiating.
Selling a family business requires special skills, and it’s likely that a family operating a business is not experienced with this process.
Get the experience that you need to Sell Your Family Business.
Contact Stonebridge Business Brokers of BC to help you sell your family business in BC.
604-866-2236
Good write up on family business. Never easy deciding to sell a family business.