Family business: to sell or not to sell? 6 questions to help you make the right decision
Regardless of how you came to the decision to consider selling, here are six key issues that will help you make the right decision, says Ken McCracken, Family Business, KPMG Ireland Private Enterprise
If the sale of your family business is the goal, one of the first things you should ask is: what is our business worth? Photograph: Getty Images
Selling a family business is a huge decision for anyone to make.
Some owners start businesses with the intention of selling it at some point, while others end up considering a sale because they don’t know of any other workable answer to the succession question, “what next?”
There’s so much emphasis on the notion of a family businesses continuing for generations, that the idea of selling could be seen as a failure, which of course is not true.
Regardless of how you come to the decision to sell, here are six questions to consider before you do.
1. Is now a good time to sell?
It’s important to ask if the sale is a good idea in the context of external market forces. Look at the active deals market for your sector as the first port of call.
You should also consider if the next generation has the interest and indeed the talent to lead the business. If not, you could consider transitioning into a business that is family owned, but not family run, which is a viable alternative to selling in many cases.
Finally, you should think about whether you, as the current owner, have financial security that is independent of the business. If not, and this is the reason you are selling, ask if security can be achieved by harvesting wealth from the business without selling it.
2. How much is my business worth?
Before you head off down the road of imagined riches, it’s essential to find out what your business is actually worth in the current market and the impact of tax on the sale proceeds. This information could affect your decision to sell or not.
3. What are my non-negotiables?
There should be ‘non-negotiables’ you identify before negotiations start. These may include commitments by a purchaser to preserve a brand or company name, to protect jobs or not to remove the business from a certain geographical area.
Initial non-negotiables may become negotiable in a sale process because there is often a gap between your best outcome and the best possible outcome that can be achieved in all the circumstances. But always remember to start out by identifying your best outcome.
4. What will I do next?
Not every business owner feels like celebrating the sale of their family business. Whether you’ve started a business or taken over from your relatives, you will have devoted a major part of your energy, passion and commitment to nurturing and developing the business, and so do not expect letting go to be easy.
Feelings of sadness and remorse can be compounded by a worry about what you will do after the sale. Not everyone will be fulfilled by more time to pursue hobbies, so before you decide to sell, think about what you’ll do afterwards. This could involve investing in new businesses and pursuing opportunities like philanthropy or setting up a family office to look after the new family wealth.
5. Have I done my purchaser diligence?
In the sale process it’s common for the purchaser to carry out due diligence on the sellers, but you might want to carry out diligence on prospective purchasers also.
This could involve gathering information on previous acquisitions made by the purchaser and looking at how well they honoured commitments, like those that are going to be part of your non-negotiables.
It could also be worth making a site visit to the purchaser or to another company they’ve acquired.
Also use your instinct. Do you trust them? And if not, do you want to sell your business to someone you don’t trust?
6. Who will act as the negotiator?
If there are several owners in your family business you might want to appoint one, or a small number, as the main negotiator with authority to act on behalf of the others, but also the clear responsibility to report back regularly on progress with the sale process. This can be easier than all the sellers acting individually, and it should be possible as long as all the sellers have agreed at the outset questions one, two and three outlined above.
Whether or not to sell the family business is one of the most important decision an owner will ever make. The above questions will assist in making the right decision and preparing for whatever the future may hold.
For more information, visit kpmg.ie