Guide to help you prepare for selling your family business.
Whether or not to sell your family business, and when to sell are among the most important decisions that you may have to face as an owner. Some owners start a business with its sale being the end in mind, while others end up considering this conclusion to their life in business because they don’t know of any other workable answer to the question, “what next?”
Whichever way you reach the point of considering whether or not to sell, the following process will help you to make the right decision.
External market considerations can, to an extent, dictate the timing of your decision, for example an active deals market or consolidation in your sector. But there are also internal forces that are equally important when it comes to planning, which are more under your direct control.
What if the next generation are neither willing nor able to take over the business; does that make a sale inevitable?
If your family would not consider themselves to have a “family” business without a family member at the helm, and if no one is able and willing to do the job, maybe it’s time to sell.
The alternative would be to recruit outside managers and move the business to being family owned but not family run. In this case the family could have an active role in overseeing and monitoring management, or they could be passive investors. If the family want to be active governors of their business, they need the time, talent and interest to be active owners and there needs to be a clear separation and balance of powers between owners and their board of directors.
Another interesting ownership dimension that might affect your business is the role of trusts and trustees. Sometimes when a trust has been set up to hold shares in a private company the wish is made clear about how the trustees should act if the opportunity ever arises to sell the shares.
However, in the absence of such direction –and possibly where it has been given in a non-binding way – the trustees always have a fiduciary duty to act in the best interests of the beneficiaries. This duty might oblige the trustees to accept an offer to sell the trust shares and reinvest in less risky assets, even when other shareholders and the beneficiaries of the trust would reject the opportunity to sell in favour of continuity of the family’s investment in the business.
If you have trustees as shareholders you should check how the story would unfold for you and, if appropriate, construct some defences against the trustees acting too independently.
Owner-managers and business families commonly reinvest a lot of profit in their business, for a wide range of understandable reasons. As a result, owners end up with a lot of their wealth in one basket, which can be risky no matter how confident you are in the ability of your loved ones.
It is generally wise, therefore to harvest wealth whenever you can. If you choose not to do this, life can become particularly awkward when the senior generation want to retire and suddenly they do not feel they have enough financial security independent of the business. In these cases the best option, or least bad option, might be to sell all or some of their shares.
It is important to be aware of the factors that can propel a discussion about selling your family business to the top of the agenda. If you want to start planning, the first task is a meeting of the owners.
In a family business there can be good reasons for others to attend; for example, family members who are not owners now but could be in the future or any senior non-family personnel whose careers could be affected by the decision.
The following is your agenda for the meeting:
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Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.