Cashing Out, Or Legacy Business?

As the owners of family businesses age, a common question often arises about whether to sell the business to the highest bidder, or pass it on to future generations of the family.  And since we are talking about families, this is an decision which – for many, but not all – can have a lot of emotion attached.  I find there is no “one size fits all” answer to the question, but there are some clues which can help guide navigation of the issue.

It is important to recognize that others beyond the immediate ownership group will have thoughts and preferences, and this can include many in the family: kids, spouses, and parents (who may have started the business, or just be interested in options for their grandkids).  Some owners and their spouses that I meet are concerned that passing the enterprise on may create some level of entitlement in the kids, or saddle them with debt and/or stress. This can be a difficult conversation to have with kids, and depending on their ages, it may not be realistic to try.  However, as a general principal, I find that as much as possible, it is worth hearing everyone out, since a decision made in absence of engagement can result in acrimony for the family later (“you didn’t even ask me”).

Current owners can sometimes fall into the trap of thinking that, if there is no immediate “heir apparent” to lead the company, then it must be time to sell, but there are practical ways around this. In fact, we often encourage owners to separate the passing on of ownership of the company from the passing on of leadership in the company.  This can be initially difficult for some, as many owners have always blended ownership and leadership into one (which is their reality). However, it is possible – and sometimes very beneficial – to separate the two for consideration of whether the business should stay in the families’ hands.  Further, if it has been family-owned for more than one generation and one succession, there tends to be more interest in perpetuating the enterprise.  A family’s name on the business (or the door) carries a lot of weight for many families, and the sense of being a longstanding part of the community often goes with that – employing staff, serving customers, and contributing to the community in many ways.  Conversely, some owners are not at all attached to the business, and view it as an asset which can be liquidated at any time for the right price, with the proceeds of the sale available for other businesses or assets that may make sense for the family.

The best step forward in making calls like this is to be proactive and engage early with the family members whose lives are impacted by the decision, and to cast a wide net.  Yes, this can create some tension, and is sometimes avoided to try to prevent any issues. However, the tension will be there regardless, and failing to talk with family members about their thinking and your intentions does not eliminate tension – it only crystalizes it.