A dream of many business owners is that someday their sons or daughters will take over their business. But in most cases, heirs are not interested in taking over the family business, as they have their own careers which they love and do not want to leave. This is quite common in situations where your children pursued their academic, vocational, or entrepreneurial interest outside of the family business and have independently established themselves in their careers. You can be proud of your heirs for their success outside of the family business.
Many lower-middle market business owners face this issue in their life where their kids have no interest in pursuing the family business.
Thirty percent of family businesses survive into the second generation.
In a recent Forbes magazine article, Catherine Schnaubelt states “family-owned businesses are the backbone of the economy. However, despite the job security and family legacy potential many of these businesses represent for the families that own them, the importance of careful succession planning is often overlooked. Indeed, only about 30% of family businesses survive into the second generation, according to the family business institute.”
You have options.
It is important therefore to explore the options and alternatives to your family as your choices include but are not limited to, a closure and liquidation of the assets of your business or more optimistically a sale to your employees, your management team, a private equity group, to a public company, to a rival company, to another entrepreneur, to a foreign buyer.
The path you choose depend upon the market attractiveness of your business by potential buyers, as well as the prospects for your business as a growing concern and lastly but often overshading your options is your own time horizon to a full transition away from the business.
We are assuming you are interested in exiting your business at its premium value. To ensure that you fetch top dollar as an outcome, timing is everything, if you have sufficient time you can ensure you explore all options. If succession planning is left to late the outcome to your family, employees and other stakeholders may prove to be sub optimal.
Succession is more than an event.
Unlike the sale of real estate or other assets top enterprise value for your company may include contingent payments tied to rolling some of your equity, vendor provided financing, your ongoing future involvement during the succession or transition period where you stay on through a period towards a full exit by you a few years in the future.
Engage professional advisors in the sale of your company.
Experts at your law firm, accounting firm, tax advisor, wealth manager will have mergers and acquisitions specialist in their rolodex and can refer you to sell-side mergers and acquisitions advisors, business brokers or investment banks to ensure your business is sold on your behalf at its full enterprise value
Children taking over the business of their parents is the dream of many business owners however if your children do not want to follow you there are a lot of other options that you can choose from and should explore with your professional advisors.
Karl Sigerist is a Managing Director at The Shaughnessy Group — The Shaughnessy Group is a lower middle-market corporate finance advisory firm. With our collective experience, access to industry data and resources we can confidentially examine a company to provide a realistic value range. Request your free report.
Karl Sigerist | Managing Director