Are you thinking about selling your business to a family member but not sure about your decision? Read this blog to know how to make the right business choice.
Members of your own family may likely be interested in purchasing your business. Maybe this is something you have dreamed about for years and have trained a family member on the ins and outs of managing the business.
At first, it may feel good to know you won’t have to deal with a stranger, and perhaps having a legacy is motivating you to make this transition.
Yet, you may face some difficulties when selling your business to a family member. You would not have to deal with these concerns if you were selling to someone other than relatives.
This article will assist you in understanding some of these concerns and how to separate family bonds while making this important business choice.
Issues That You May Encounter
Finding the right one
Selling your business is not as easy as it sounds. However, evaluating every potential buyer is one essential priority that occupies the biggest chunk of your decision-making process.
Dealing with a family member triples the evaluation work. You may have some doubts about a family member’s abilities, knowledge, and dedication. Not only that, but your personal bias will influence the business without your knowledge, potentially causing long-term conflict.
For instance, you may sell it to a family member since they are your closest cousin, but they aren’t the most business-savvy member of the family.
To avoid this, establish an objective list of qualities in terms of knowledge, competence, and degree of commitment to help you choose the correct individual. Engaging someone you trust to provide an objective opinion may be helpful as you make key decisions.
Recognizing family resistance
Change is usually not met with cheers and huge grins. More often than not, there are questions and complaints. You may expect some opposition whenever a family member is involved in the sale of a business, whether you are on the giving or receiving end.
A fear of family conflict likely fuels resistance if things go wrong. Furthermore, the opposition is intensified if the deal isn’t mutually beneficial. So, even if you aren’t ready to go all-in on selling the business to a family member just yet, try to include him/her in the discussion and establish a firm foundation of communication and understanding.
Keep this in mind: getting everyone’s buy-in that selling the company to a family member is the appropriate step for the business. To avoid further conflicts, you must address the resistance.
Personal judgment at play
Your business is a source of pride for you. Having said that, you have a distinct style of operating your business. And your enthusiasm is evident in every facet of your work. However, your enthusiasm may lead you down a different path, particularly when it comes to selling.
How? You may find yourself criticizing and even doubting a family member’s talents and knowledge based on feelings or out of emotions rather than facts. And, even if you are acting in the best interests of the business, disagreements will occur. That’s perfectly normal.
As much as it is a professional transaction, selling a business to a family member is a personal one. It might be a breeze or a minefield of emotional turmoil, depending on the scenario.
You know you can put your faith in them and that they will do a good job. You’re confident that they’ll provide value and abilities that you don’t have. However, you are aware that dealing with family members who may feel entitled to or unappreciative of your hard work and sacrifice over the years carries some danger. Fear occurs as a result, which can cause delays in the sale process if not handled properly.
And although it might be reassuring to know that a family member will be a prospective business owner, this does not rule out the possibility of envy. This emotion might arise when you see or think of a family member trying to change the business.
How To Keep It Professional
Treat the family member like a regular buyer
Have a framework for determining if a specific family member is best equipped to head the business. Recognizing areas of competence and devotion will relieve you of the burden of wondering if you’ve given the company to the right individual. Getting this right can reduce future issues arising from a family member experiencing rejection if they aren’t a good fit for the role.
While selling to a family member is not the same as selling to a third party, estimating the correct business valuation is still necessary. The actual valuation procedure should be the same for everyone, meaning: even if you’re selling to a family member, it doesn’t mean that you should take the low end.
Have a formal exit plan and sale agreement
It may take longer than you think to transfer a business to a family member. A detailed exit strategy will help you avoid disputes during the selling process. As you prepare for the exit, it’s also crucial to maintain an open line of communication with family members (especially those who play a vital role in decision-making). Keeping them out of the discourse might cause a rift.
Explain how the exit strategy will work for the family member who will eventually acquire the business. Discuss clear expectations and boundaries.
Handshake agreements are common in a family business, but they can lead to complications. Know that a purchase and sell agreement should be written for a sale. This agreement contains information such as the value of the business, the amount paid, the payment schedule, etc. It also provides state and federal entities with proof that a new owner is responsible for the business.
Reach out to advisors
Owning a business necessitates a high level of self-reliance and trust in one’s decision-making ability. On the other hand, the business transition is multidimensional and requires a great deal of skill.
This is a one-shot opportunity to get it right. That said, reaching out to advisors is perfectly acceptable; it may be a way to ensure objectivity and sound decision-making. But, unfortunately, there’s little chance of turning things around once the business has been sold.
You need a team of trusted advisors in place who can share their experiences and help your family weigh the benefits and drawbacks of this situation. These experts may also be helpful in navigating the emotional waters of selling a business to a family.
Additionally, these advisors may serve as “reality checkers,” pulling you back to your goals when family concerns appear to be interfering with your professional decisions.
With its intricacy, there is a lot for you to enjoy. And it will mostly be a learning experience.
So, start planning early. Talk to your family to know whether they are interested in carrying it and getting into the buying process. You must prepare the strategy thoroughly – and quickly – to achieve the most value for your business and guarantee a seamless transition.
All things considered, make the deal fair and professional.