Selling the Family Business
Did you know only 1/3 of business owners succeed in passing their business to the second generation; only 12% of the second generation owners are successful in getting the business to the third generation; and by the fourth generation, only 3% of businesses are still controlled by family members? According to a PricewaterhouseCoopers study, there are more than three million family businesses currently contemplating a sale.
If you are a business owner and you are contemplating a sale, you may be asking yourself what is the best way to sell your business. Here is the process we discuss with our clients:
1. Determine family dynamics issues, including whether selling is better than succession. Are there family members who can fill the shoes of current family management? Can a professional management team be brought in to avoid a sale? Is a sale to employees or a third party appropriate?
2. Formulate a team of advisors to ensure the transition occurs effectively and with collaboration. The sale of your business may require you to change or expand your advisory team to obtain the best results. Your advisory team should include at a minimum a qualified CPA, a transactional attorney, an investment banker, an appraiser and a financial advisor.
3. Financial planning is required to determine the cash flow needs of the owners and family members are met. In this step it is necessary to determine if after the sale there is sufficient core capital to sustain the business owner and their family members lifestyles.
4. Analyze the timing of the sale to maximize value on the sale given the state of the business and the current business cycle. There are multiple steps that need to be taken to get the business ready for sale. These steps are based on your particular business but may include reducing costs, diversifying the customer base and developing a strong team of nonfamily managers.
5. The transaction needs to be structured properly. As a business owner you only have one shot to get the transfer of your business correct. It is vitally important to ensure the transfer is structured in a tax-efficient manner. You need to consider federal and state income tax, capital gains tax, estate tax, and charitable planning opportunities when structuring the transaction.
6. Determining the proper buyer. Is your business better suited for a sale or transfer to a strategic buyer, a financial buyer, other family members, the existing management team or the employees using an employee stock ownership plan?
7. Finally, it is important to consider post-sale planning for the business owner(s) and their families. Often each of the owners want to take their money and go their separate ways, while other times families want to pool the proceeds and invest them together using professional money managers and possibly even a family office.
Please contact us to schedule a free consultation to discuss your business transition plan. It is never too early to start planning!