An offer you can’t refuse: placing a value on your family business

An offer you can’t refuse

We all know the saying, “it’s an offer you can’t refuse”, but what exactly constitutes such an offer in terms of selling a family business? Is it just about a really good financial return? Well, that’s quite an easy one to answer: no. When it comes to selling a family business, there’s so much more involved than just money.

Partner, Global Head of Family Business

KPMG in France


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An offer you can’t refuse

There are important relationships, loyalties, and emotions involved, and these need to be carefully deliberated in connection with monetary considerations. Let’s consider some of the financial as well as non-financial factors that should influence the sale decision in a family firm…

Financial considerations

Anyone selling a business wants to realise their equity in that enterprise, often with the intent of funding their retirement years. Trade sales are often the most effective way of attaining this objective. The ideal time to sell the business is when it’s at the height of its success.

This can be hard to do, but the return on the sale will be far better than if you wait until the older generation has just left and it becomes a forced sale, the value of the business at a low. Generally speaking, the financially ideal time to sell is close to your retirement. Family business owners in financial straits who are approached by a buyer can sometimes feel pressure to seize hold of the opportunity, but be careful of acting hastily.

Preferably the company should already have a selling strategy in place, and a figure worked out. Don’t underestimate the skill of professional buyers and sellers – this may be the only time in your life that you have to deal with a sale, whilst they do this every day. They can use any conflict within the business, any damaging reports, and so on to argue your price down.

Valuing the family business

Have a clear understanding before negotiations of the worth of your business as well as of any extras, such as property, machinery and excess stock. The seller also needs to consider how the sale will impact:

  • the finances of the family (how will life change now there is no longer that source of income?);
  • the finances of family employees (what will their role and income be should they remain under the new owner?); and
  • the finances of non-family employees (are they getting a good deal, and is that deal assured in the long term?)

It’s important to note that selling isn’t the only option available to those pushed into a sale decision through financial distress. You could, for example, do a leveraged buyout, sell some stocks, recapitalise, create an employee stock option plan, or go public.

The family business owner needs to consider sale options in light of business needs as well as relationships. You don’t want the transition to negatively impact your ties with your employees, both family and non-family. The best way to ensure this is to be as inclusive as possible in the process.

Non-financial considerations

Business exit strategies that best meet the needs and aspirations of all family employees are generally the result of family consultation, clarity of purpose, and careful planning. Furthermore, good strategies have a degree of flexibility, allowing families to promptly and decisively take hold of favourable but transient circumstances, understanding that timing can be everything in business.

Before advertising for a buyer or responding to an unsolicited outside offer, the incumbent owner could consider selling the firm to children and other family members. You don’t however want them taking on significant debt burdens, so a comprehensive discussion of the pros and cons should be had before any decisions are reached.

Sometimes business owners also like to give faithful employees the option of buying out the business before agreeing to sell to an outsider. This action can validate their worth, so preserving good relationships. It can also have the added bonus of continuity within the business. Lastly, don’t underestimate the emotional effect of selling a family business.

From valuing the business, to letting go control of the fruit of all your years of labour – it’s almost always an affecting experience. Having an outsider dissect and monetise your business can be disheartening, as often we estimate our business as worth more than what buyers are prepared to pay. Understanding this can help you to take it less personally.

But even if the sale price is extremely gratifying and the transfer a smooth operation, allow yourself room to feel whatever emotions the leave-taking evokes. They are valid and necessary before embarking on your next adventure in life.

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