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Family businesses and properties are unique, and the succession process can be unnerving. You cannot decide without involving your family, not forgetting everyone will come up with their ideas.
But besides that, family businesses experience stability in leadership since members are committed and accountable. The long term commitments lead to stronger customer relationships and effective marketing and sales.
So What Is a Family Business?
A family-owned business can be best described as any business where family members are involved. The major control and ownership lie within the family. It’s estimated that 90% of businesses in the US are family-owned. From large conglomerates to small businesses.
Family businesses offer an array of benefits, including:
- Flexibility – In a family business, members are always willing to wear different hats. You won’t hear, “that’s not my job” kind of complaints. Members can handle tasks from cleaning, cooking, packaging, delivering, to mention a few.
- Commitment – In family-owned businesses and firms, the needs of the family are the top priorities. This makes members have a high level of accountability and commitment. The common goal is the common uniting factor.
- Leadership Stability – There is usually longevity in leadership in family-owned businesses. This brings stability to the organization for many years. The leader usually stays in power until a life event such as retirement, death, or illness.
- Decreased Costs– Family members work at family premises, and they willingly contribute their finances for long-term success. This could mean taking a pay cut, contributing capital, and handling some tasks with agility for the business‘s benefit.
Even with such benefits, selling a family business can be challenging. But with the right strategies, the process can be seamless.
Selling Family Business: 5 Essential Actions
1. Liquidating Expensive Assets
If you’ve agreed to sell the family business, liquidating assets is an appropriate exit strategy. Ensure you have a well-thought-out plan for a smooth process. Many family businesses have assets in the form of equipment, buildings, and lands worth millions of dollars.
Ensure you prepare the business inventory. Include serial numbers, photographs, and a brief detail of all the items. Having an inventory will save you time and expenses as you prepare to sell properties.
The next step is to prepare available assets for sale. For instance, if the family business owns a building that hosts the business, the buyer will buy the building and the business at a regular sale. It means you’ll end up selling the business at a throw-away price.
To avoid such a scenario, you can sell the building and sign a lease contract later with the new business owner. This can also happen with excess valuable stock and unused land.
If you’re operating an office, ensure all the furniture is revamped. If necessary, clean, paint, and repair all the items you need to sell. The business premises should be clean and neat. And for the outdated assets, you can donate them to charities.
2. Estimate the Book Value
After deciding what to sell, you can now estimate the net worth by adding all the available assets then subtracting the debt. You will get what we call the book value. This is the value you’ll get by dissolving the business.
The family business’s value should be higher and greater due to things like brand recognition, staff experience, and relationship with the clients. The book value provides a floor that gives you the least amount you can sell your business.
You can assign some members to investigate if similar businesses were sold recently and at what cost. This way, you’ll be able to ask for a better price.
Once you have the price, you can place an advertisement in local papers. Spread the word to friends and local business attorneys. The local business council might also offer help as they can guide on how to contact prospective buyers.
Note: If you want to maintain family members’ jobs, you may necessarily lower the asking price.
3. Work with the Buyer
Operating a family business can be relatively challenging. Your clients might be shopping for your products and services because they have trust in you. And when they see different faces, they might drastically drop.
Once you sell the family business, ensure you work for some time with the new buyers. Perhaps you maintain some family members for a few weeks, if not months. It will make them think it’s the new heir meaning to take the business to greater heights—familiarity in business breeds confidence.
Consider staying onboard and educating the new owner on how to operate. You may also consider spreading the payment over a few years for affordability.
4. Work with a Reliable Business Lawyer
A business lawyer helps businesses deal with legal issues. The attorney will review your business history and ask some basic questions to understand your business better. They’ll also advise you on legal matters, business models, sales figures, and policies.
Involving a lawyer in the sale of your family business will bring in some sanity. A lawyer acts as a central figure who offers advice to all members regarding selling the business.
An attorney helps spread the word regarding your business and helps you establish proper relationships with customers, suppliers, clients, and partners.
Selling a business is a lengthy process. It involves lots of paperwork and tough negotiations. With a reliable business lawyer, you can be assured the process will be easy.
5. Put it on Paper
Now you have the best value for your business, and everything is under control. The final journey is to put everything on paper. The attorney will prepare a detailed sales agreement. Before you sign the deal, ensure your attorney and the buyer’s attorney are both available.
If you are to be paid in installments, ensure there is collateral that you can claim if the buyer defaults.
In Conclusion
If you think running a family business is challenging, try exiting one. However, with a proper strategy, you can have a stress-free process. Transparency, confidentiality, and commitments are the critical ingredients for a successful business transaction. We hope after reading these tips, you’ll find it easy to sell that family business.
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