Many family business owners aren't always aware of the effort needed to find an appropriate buyer or to prepare their company for ownership succession. Those who are thinking about selling their company want to carefully think about the process and start planning at an early stage.
The first step in selling the family business is to know why the family business should be passed on. The owner should be aware of the next generation’s abilities and aspirations, and should assess their potential as future leaders of the family business with objectivity. After deciding that the business should be sold, the next decision an owner should make is when to sell it. From an industry and market point of view, there might be times when it seems to be the ideal moment to sell the family business. However, selling the family business involves more than industry or markets trends.
While these four cycles may evolve in different ways, the success of any strategic financial transition for a family owned business depends on how owners can time the transaction within the four cycles.
Global growth perspectives are considered in the business cycle. Owners need to determine whether their company is attractive to outside investors or potential buyers. To make sure the family business is well positioned; macro-economic trends which affect the growth of the company can be identified. The development of new markets along with rise of competitors and the speed of innovation can also be considered to know if the family business is appealing to investors.
The liquidity cycle takes into account the amount of current liquidity available on the market and the current appetite of investors looking to invest in family businesses. Successful family business sales usually happen when the market is very liquid and financial resources are easily accessible. The liquidity cycle has a big influence on the nature of the deal to sell the family business.
The family component of the family business is the main driver of the ownership cycle. If the owner has decided to sell the business, it is essential to define the role he will play following the sale of the family business. All shareholders also need to be involved in each stage of the sale process, from the decision to sell the business to the reinvestment strategy. In order to reach a common agreement and help the family make wise decisions, family businesses need to have solid governance systems in place. Effective governance systems can be Family Councils, Family Offices or even Holding companies to deal with reinvesting issues, distribution of benefits.
Finally the fiduciary cycle takes into account wealth preservation strategies for the family business and the family. Evaluating how to best invest capital, creating long term value as well as focusing on the short and long term cash needs of the family are the essential considerations of this cycle
While considering all four cycles can add a layer of complexity to the whole decision-making process, involving outside management and trusted advisors such as lawyers and tax planners, can help have a clear picture in mind and build effective communication within the family. In an ideal world, the four cycles should all be aligned when considering the transmission of the family business. Ultimately, knowing where you are in those four circles and knowing what to do to improve the timing on the cycles will boost the chances of a successful transition.
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