Smith & Sons, Inc., had been in business for several generations. The current CEO, Henry S., had concerns about the company’s viability. Henry weighed his options carefully. One possible solution involved selling the family business.
Reasons to Sell
Selling your family business may seem like the best option if you are faced with these problems:
- Difficult family relationships. Sometimes family members involved in the business just don’t get along. Every decision turns into a fight, and it’s hurting your business. At some point, selling the business may seem like the best solution: everyone can take their share of the sales price and scatter.
- Cannot support viable business. Times have changed, and so have people’s tastes. The camping equipment your family business has sold for generations is now considered old school. Sales have dropped. You need to retool the entire operation and that takes cash, lots of it – cash your family doesn’t have. If there’s no way to bring your company into the 21st century, you may have to sell.
- No interest or passion in the business. Growing up, you thought being part of a family business was great. What happens when your interests change, though? Maybe you’re no longer interested in manufacturing fishing boats, selling insurance, or turning your family’s hot sauce into a hot commodity. In that case, it may be time to sell.
- Current management leaving the company. As top management retire, or when they pass away, a family business may face tough decisions about the future. If no one wants to step into those open management positions, it may be time to sell.
Outside influences also may determine whether and when to sell.
Factors to Consider
If you do decide selling your family business is the best option, you’ll need to take the following into consideration:
- The Market. Research the market for your company. Are other companies selling? Are investors interested in buying family companies now? Is the market hot or cold? The answers to these questions could make a big difference in the next factor.
- The Industry. Consider how other companies in the same industry are faring. Is the industry changing in a way that may affect your decision to sell? Is the industry dying off?
- Timing. If the market does not look favorable now, can you wait to sell? Will the company decrease or increase in value if you hold on a little longer?
Make the Transition as Smooth as Possible.
It’s an emotional thing, selling a family business. But emotions can’t rule when it comes time to negotiate a sale. Consult with an experienced business attorney before making decisions or signing any documents.
There are many paths you can pursue with regard to succession planning with family members. You can use an estate planning based solution, (like intentionally defective grantor trust, deferred installment sales trust, synthetic 1031 exchange, self-canceling installment note), business succession planning tool (like a buy-sell agreement, phantom/synthetic equity, long term buyout) or a straight sale with seller financing.
The experienced business attorneys at Virtus Law have what it takes to assist with your legal concerns. Please contact us by calling 612.888.1000 or emailing us at info@virtuslaw.com. Our main office is in Minneapolis, with other offices located in Maplewood, Cambridge, Edina, Mendota Heights, and Red Wing.