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Selling your family business

Selling your family business

Guide to help you prepare for selling your family business.


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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.

Ownership matters

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.

Risk and pensions

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.

Where to start on the sale process

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:

  1. Why now?: As mentioned above the following questions might help clarify the reasons for the decision to sell:
    • Does the next generation of family have the interest and talent to become managers? If not, do we want to become family owned but not family run?
    • Do the owners have financial security independent of the business and if not can this be achieved by harvesting wealth from the business without selling it?
    • How would the trustees of trusts that own shares react if they received an offer to buy their shares? Would they have to accept or would they do what the family or other beneficiaries of the trusts wanted?
  2. Valuation: If sale is the goal, you need to understand what your business is worth, which means paying for good advice. It can also be a bit of a reality check on what you can expect to receive for the business.
  3. What are your non-negotiables: These may include commitments by a purchaser to preserve a brand or company name, to protect jobs or not to remove the business from a certain area. Initial non-negotiables may become negotiable in a sale process because there is usually some gap between your best outcome and the best possible outcome that can be achieved in all the circumstances. However, the wise seller will always start out by identifying their best outcome.
  4. Avoiding sellers’ remorse: Not every business owner feels like celebrating the sale of their business. Whether you’ve started a business or taken over from your relatives you will have devoted a major part of your energy, passion and commitment – your life - to nurturing and developing the business, and so do not expect letting go to be easy. Feelings of sadness and remorse can be compounded by a worry about what you will do next with the rest of your life and not everyone will be fulfilled by more time to pursue hobbies. Therefore before you decide to sell, decide what you’ll do afterwards, which could involve investing in new businesses and pursuing opportunities like philanthropy.
  5. Purchaser diligence: In the sale process it is common for the purchaser to carry out due diligence on the sellers, but in the sale of your businesses you may have such an emotional attachment to the business that you want to carry out diligence on the prospective purchasers. For example you might want to do the following:
    • Financial checks - information on previous acquisitions and how well the purchaser honoured commitments like those that are going to be part of your non-negotiables.
    • Make a site visit to the purchaser or to another company they’ve acquired.
    • Do you trust them, if not, do you want to sell your business to them?
  6. Negotiators and communication: If there are several sellers you might want to appoint one as the main negotiator with authority to act on behalf of the others, but also the clear responsibility to report back regularly on progress with the sale process. This can be easier than all the sellers acting individually and it should be more possible as long as all the sellers have agreed at the outset items 1,2 and 3 on our suggested agenda.


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