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//The Dynamics of a Family-Run Business, Part I

The Dynamics of a Family-Run Business, Part I

“Selling the Family Business”

agreement-303221_1280So here you are, a second or third generation family business owner. The business has been in operation for 50 years or more, with decade after decade of continued revenue and income growth. However, the company may not be in a position to successfully transition to that third or fourth generation. It might be time to sell to a buyer outside the family.

Let me start by saying, “That is fine! There is nothing wrong with that.”

Statistics show that a little more than 30% of all family businesses survive into the second generation. Approximately 12% will still be around into the third generation, and only 3% of all family businesses will operate into the fourth generation and beyond. If your situation fits into the description above, the following tips may be of use:

Leave your emotions at the door. I know this is much easier said than done. You and your family have put blood, sweat, and tears into building the business into what it is today, and you want to see that value recognized in the offer amount. Please try to understand where a potential third-party buyer’s offer is coming from. More often than not, the offer will be based off a multiple of a calculated earning stream. It may not take into account those “hard to quantify” intangibles (blood, sweat, and tears). I have seen many good offers die at the table due to inflated price expectations not being met. Do not let emotions get in the way of you receiving fair compensation for your business.

Work with your business advisor and/or sell-side intermediary. The best family-business deals I have seen have resulted when the family and sell-side advisors work as one cohesive team. They are already armed with an expected price range, they are ready to negotiate and refute any EBITDA adjustments the buyer proposes, and they know exactly how long the family wants to stay on board post-sale for transitioning.

We have only begun to cover the breadth of this topic. Future parts will further expand upon selling the family business in addition to covering other areas of family business operations.


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