Perhaps you have started to suspect you may need to sell your business rather than hand it down to your children. Here are a few indicators as to why you may want to consider selling the family business:
1. Your children are not interested in the business. If you run a profitable small business that put your kids through college, chances are they have their sights set on bigger goals when they graduate. Even though the company is big enough to warrant their joining the business they are not interested, because of their new found interest and desires from obtaining their college education. This can be painful when it happens. There is nothing wrong with laying out the facts regarding the opportunity that the family business presents to them. But forcing the company on your children will only result in resentment or poor performance or both.
2. Your children are not capable. The reality of the matter is that not everyone is capable of running a business and just because they are your children doesn’t automatically make them capable to operate and manage a business. Sometimes it takes a lot of courage and mental fortitude to realize this, but it is reality. I have met many clients whose children, despite their parent’s hopes and dreams, were not cut out to run the family business. This is where the saying “Thunder, Blunder, Under” came from and it is when unqualified children are either forced into or allowed into the family business and they are not qualified to operate the business. By the way Thunder, Blunder, Under means the first generation made the business successful. The second generation floundered around and somehow kept the business together and the third generation took or let the business go under.
3. Ownership has become too diluted. Unless the company is always growing, it is hard to support a growing numbers of owners. This is true whether they work in the business or not, because the company can’t keep paying salaries or dividends or bonuses to those not in the business or individuals who are not working fulltime in the business, but yet are receiving a healthy compensation. Also, it could be a struggle to provide sufficient incomes to a large number of active owners. And there’s also the increased difficulty in managing the business among multiple owners. Basically we have too many people feeding from the same trough and unless you are growing at an exceptional rate the out go of money will out strip the income of the company and eventually will bankrupt the company and cause great dissension among the family.
4. You receive an offer you can’t refuse. This doesn’t happen very often, but when it does you should know it is a great offer and you should take it. Markets go up and markets go down and regardless what kind of business you are in you should always know what the market value of your business is in your industry. Why not sell your business at the top of the market. This was the situation with Anheuser-Busch, which was purchased by Belgian beverage giant InBev in 2008 for $52 billion. The offer was far beyond the realistic value of the business, the current generation thought they would be foolish to turn down the offer. Don’t try to convince yourself that you are keeping the company for your kids unless they understand the money involved, loudly declare their desire to run the business, and have a credible plan that makes financial sense. Otherwise take the money being offered. The old adage is “this is where two fools met. One for offering and one for not taking!”
5. Members of the next generation don’t like working together. Here again we need to apply the Theory of Reality. The reality of the fact is that maybe all of your kids are capable; they can’t seem to get along with each other. If they are not getting along now, it will only be worse once they are in business together. Turning the business over to them will impact your retirement plans, affect their lives, and possibly destroy the relationships they have between each other, which will definitely spill over onto the parents. And if this happens you can forget the big family gatherings at Thanksgiving and Christmas.
6. There are major changes in your industry. Market and technology changes can alter the business landscape in such that it requires massive reinvestment to reposition the company. Customers tend to migrate to new places and things. And to keep up with the trends and desires of your customers you may need to invest large amounts of time and money, which you are not certain will pay off in the future, but you know not doing so will be the kiss of death. The business is at a crossroads and one must decide whether to take on additional debt and grow the company and attempt to take the company to the next level or sell the business taking your hard earned equity out of the business at the present time rather than taking the risk of losing it all.
The Bottom Line: Sometimes the difficult, but smart decision is to sell the family business.