“Selling the Family Business”
We began this three-part series on selling the family-run business by discussing a few tips that may help you before you begin the process. Once you get into the thick of it, it’s important to keep these things in mind:
Understand the full effects of related-party transactions. Family-run businesses tend to be involved in more related-party transactions than other closely-held companies. The two most common related-party transactions we see are:
- An office building that is owned and held in a family limited partnership (FLP). The FLP charges below market rent to the family-run business.
- Family members receive compensation in excess of the market in relation to their job responsibilities.
There is nothing wrong with these related-party transactions during the due diligence process. In some instances, there may be an opportunity to convey the sale of the office building held by the FLP along with the business.
Family members need to be in sync with their roles during the sales process. We see this all too often: a family-run business wants to sell outside of the family, so we take the business to market and present the family with potential buyers. Then, one family member changes his or her mind about the length of time he or she would like to remain post-sale. In the middle of a meeting and negotiations, another family member decides he or she wants to lead the discussions and will interrupt others. These types of “audibles” create unnecessary challenges and interrupt the flow of the sales process. Circling back to the first part of this series, this is why we stress the importance of working with your business advisors or sell-side intermediaries. They will help by clearly identifying and defining roles and responsibilities for everyone in the process, as well as by making sure the family members are emotionally ready to sell their business.