There are several factors to consider when selling your family business. These include timing, burnout, cultural upheaval, and tax-smart sale of assets. Below are the most critical reviews to consider before selling your family business. In addition, below are some tips to help you sell your business. Take these steps to sell your family business and make the most of the sale.
Table of Contents
Timing
Whether to sell or keep a family business is a complicated decision, often based on the needs and interests of key players in the family business system. The decision to sell or keep a business typically requires a dialogue among owners, business leaders, board members, and family members. To make the process as smooth as possible, it is helpful to understand these factors in relation to the likely sales price. A low or high sales price can drastically affect the decisions of family members. Therefore, experts recommend consulting a qualified, independent advisor to determine the likely sales price.
The benefits of owning a business far outweigh the costs. But, it may be better to avoid selling the company until the benefits outweigh the costs. If there are family members who don’t wish to run the company, the alternative is to hire outside managers. It is important to remember that selling family business can take six months or more, so you should start planning in three years.
Burnout
While many entrepreneurs are excited to run their own company, an 80-hour workweek can adversely affect a business and its owner. Replacing the owner’s expertise may be difficult. In addition, business owners rarely receive premiums when selling their businesses. Therefore, burnout also affects the company’s value.
If you’ve reached a point of burnout, you may want to sell your business. Selling your business can help you get back on your feet and re-invigorate your love for the company. Additionally, the profit from the sale will allow you to invest in your next venture or retirement. This decision may help you pull yourself out of burnout.
Cultural upheaval
Culture and leadership go hand in hand. A family business’s success depends on the leadership team supporting the desired culture. Culture is difficult to change because its underlying drivers are usually hidden. A cultural analysis of the family business will help unlock its true potential.
The defining characteristics of a successful family business are its culture and values. There are four types of family firms with distinct cultures. In a family business, a dominant culture tends to be authoritarian and authority-based. A more decentralized, flatter culture fosters learning, innovation, courage, and openness to new ideas. As such, it is essential to invest in people and the development of their skills. Setting standards for good work and providing clear roadmaps are crucial to the business’s success.
Tax-smart sale of assets
Selling your business and assets can have substantial tax implications. The IRS requires a seller to allocate the total sale price to specific assets. This allows the seller to calculate taxable gains and establishes the buyer’s tax basis in the acquired assets. To achieve this, the seller must allocate the total sale price dollar to cash and CDs, and the remaining amount must be given to the government or marketable securities. However, the allocation must be up to fair market values.
Returns on investment
While buying into a family business may seem like a safe, risk-free way to invest, it is far from it. A proper analysis requires extensive financial due diligence to ensure that all parties’ incentives and interests are aligned. In addition, a successful transition depends on the cultural and structural fit of the new family.
While a family business has often cultivated itself over generations, preparing for eventual shareholders’ departure is essential. Some shareholders may desire to convert their investments to more liquid assets, diversify their portfolios, or become tired of the family business. A strategic buyer can quickly integrate the company into its new life. The transaction consideration paid to the new owners will vary considerably, depending on the type of business and the amount of ownership interest.
