Anxiety opportunity: selling a multi-generational business

When you are considering selling a multi-generational business there are many factors that come into play, such as how is the ownership distributed, how are assets being utilized, who is actively working in the company, how will the company look like after the sale - each has its own special factors that can lead to anxiety. Finding the right advisor on this journey is like having an experienced tour guide take you through the twisty streets in a city foreign to you.

Anxiety perhaps ... rewarding certainly.

How the company looks after the sale has much to do with how much of the company is being sold and what is the intention. The company could be selling just a portion of the business to raise money for expansion or to broaden the investor base and allow one, some or all the family owners to take some money off the table, experience a liquidity event. The other end of the spectrum is that the family is looking to sell all the business to a competitor or a private equity firm. In each of these cases there could be a substantial liquidity event and, as always, it is critical to have a tax attorney and accountant weigh in on the strategy for the structure of the sale. Generally, in the case of selling 100% of the company, the hardest part is figuring out the allocation wealth to the family members.

In the situation where you are planning on selling a portion of the business, while you will have wealth allocation considerations, you may have many more things to consider such as what family members are working in the company today, will they want to stay, should they stay, and what would be their role going forward? It is not uncommon that in a family run business all sorts of people, particularly family members, are doing jobs that may not be truly needed. When you take on outside funds, depending upon the extent of the 3rd party investment, you may be under some restrictions about what roles should exist going forward, either in the near-term ore longer term. There is often some delicate maneuvering that needs to be executed to create a more effective alignment of staff to business functions.

It’s even possible, and perhaps likely, that there are family friends working in the company. Depending on the size of the organization, you may be faced with right sizing of these roles as well which then introduces the need for some sort of compensation formula for the folks that are staying and the ones that leaving.

When you look at the utilization of assets, this too has some interesting dynamics. If the company has been around for decades family members may have become attached to certain assets over the years. There could be farming property with a house on it that will be staying with the sale, there could be a garage that has been uniquely remodeled to display a valuable collection of some sort. Selling the business will require a formula for addressing these assets as well and ensuring that there is an appropriate value placed on the asset and that the family member retaining the asset pays a value for that asset to the funding mechanism.

No matter how you look at it, the opportunity raise cash is often an exciting time for a family that has worked hard over the years. The cash means an opportunity to diversify, create quality time, and even align with new investors with new ideas, that create an even longer runway for the company.

Selling a business creates anxiety, selling a family business is often tougher, yet with clear goals and objectives laid out, and a trusted advisor at hand, the process can be completed in a timely and fair fashion such that everyone gets a win. There are many more factors to consider and as tough as it appears, rest comfortably that you are not the first person to go on this journey, you are not alone.