How to sell a family business

For family-owned businesses, succession planning comes with unique challenges – they are family-centric with ownership and management frequently intertwined.

The thing that makes these businesses different – their family ownership – is one thing that makes succession planning for family-owned businesses challenging. However, there are other factors you must consider. Timing has a key part to play. So do market conditions.

In this article, we will look at:

• common reasons for selling a family-owned business
• evaluating the business and deciding to sell it
• preparing the business for sale.

Common reasons for selling a family-owned business

Why would you want to sell your family business? Motives can vary, from wanting to raise capital to having no obvious successor. Some business owners want to sell to retire, others to capitalise on what they feel is a “now or never” moment dictated by market conditions. Sometimes these conditions feel more negative and the owner decides it is better to sell than to continue with the business.

Other opportunities may arise, such as someone with a specific skill set or connections offering to buy and take the business in a new direction, attracting new investors as part of this.

Families have their frictions as most people who have attended a family event know. These frictions can impact the running of family-owned businesses and, in some situations, lead to the decision to sell.

Understanding the reason to sell is vital to ensure the process works for the seller and other stakeholders. Many owners feel emotionally attached to the enterprises they've built up over years or even decades. Some hold onto ownership longer than is economically sensible because they feel a sense of duty to do so.

Selling a family-owned business is unlike selling any other type of business. But, providing you plan diligently, there is no reason this shouldn't be successful.

Evaluating the business and deciding to sell

Before you decide to sell, you must discover what your family-owned business is worth. You can use different ways to arrive at this figure, combining various methods in your overall business evaluation.

In addition to its tangible assets, a business can also own intangible assets with value-enhancing potential. These non-physical properties include its brand, reputation and intellectual property IP such as patents and copyrights.

The discounted cash flow (DCF) valuation method looks at projected cash flow and determines its present value to calculate the company's future value. The discount is the interest rate you apply to the projected figure to account for unforeseen expenses.

Another way to look at value is comparable analysis, where you get the value of your business by comparing it to similar enterprises in the same industry, based on current market values. To support this method, you will also need to use other methods such as multiple analysis, to benchmark the business’s value.

The most appropriate valuation methods to apply will depend on the nature of your business. Once you have a valuation, you can decide whether to proceed with the process and move to the next stage of preparing your business for sale. At this point, you should have a clear idea of your business's market readiness and what you'll need to do to be ready for exit.

Are you exit-ready to sell your business? Take our easy exit-readiness test to find out.

Preparing your business for sale

Family-run businesses are rarely off-the-shelf ready for sale. Preparing your business for sale involves looking at ways to enhance its value to attract buyers.

Legal and financial preparations are fundamental for a smooth transition:

• a clear and accurate balance sheet
• up-to-date contracts with partners and suppliers
• contractual agreements with key employees and management.

You must also adopt an exit strategy, to prepare the business for when you are no longer a part of it.

This process may not be straightforward. You need to ask yourself, can your business run without you? A big part of preparing your business for sale is finding ways to embed value without the involvement of you (or other family members if they are not staying on).

It is here where the role of an external M&A advisor becomes critical. They will bring fresh perspectives and insights to the business’s structure and processes and how best to market it to achieve the optimum outcome in terms of value and price.

Sell your family-owned business with Marktlink

As specialist M&A advisors for SMEs, applying our broad market knowledge, we will help you sell your family business by ensuring you have built value to achieve the best possible outcome.