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Succession: Time to Sell the Family Business?

Succession: Time to Sell the Family Business?

When it comes to exiting a business, owners have three options: close the doors, sell to management or sell to the outside market. Family businesses have one additional outlet when it comes to owners exiting the business, sell to the family. Yet, statistics show that family businesses endure a high rate of generational failure. Maybe this high generational failure rate is due to the over-reliance of the family option. When should family owners consider selling the family the family business?

 

Reasons to consider selling the family business:

 

  1. Alignment with family strategy. Asset diversification may be a proactive tactic to achieve alignment with the family’s overall goals and interests.
  2. Next generation family members are not viable options for owning the business. The next generation may not be interested, qualified or capable. Proceeds from selling the family business could be diverted to acquiring other businesses in alignment with next generation strengths, talents and passions.
  3. Business conditions have changed that are impacting economic value. Business condition deterioration might include the loss of major customers, loss of key employees, large capital requirement or technology shifts that will impact the ability of the business to compete.
  4. Family conflicts have become destructive to the competitiveness of the business. Typically, this plays out in the inability of family leaders to make decisions because of communication breakdowns.
  5. Family passions have deteriorated to the point that the family leaders have lost passion for the business or resent the business. Leaders decide that the need for continuing family relationships have become more important than continuing the business.

 

The truth is that keeping your family business may not always be the right answer. There are certainly situations where selling the family business is the best answer; in some cases, it may be the only answer.