Selling your family-owned business?

There once was a family-owned business that has sales in the millions.  They bakery sold bread to restaurants, supermarkets, and some retail outlets.  The founder gave each of his five children 20 percent ownership of the business.  The founder’s children really didn’t want to work in the business, so they turned the operation and management over to two members of the third generation.

Eventually the founder’s children decided that they wanted to sell the business since they were close to retirement age.  For some years the business has been operating on a break-even basis and sales were not increasing.  A professional business broker was retained to sell the business.  He contacted as many of the larger bakeries as possible hoping to find a suitable acquirer.  There was very little interest.  The business broker continued his search to find a good buyer for the business.  after a lot of work, he finally found a successful businessman who offered a price equal to 50 percent of sales – a generous offer.  The business broker presented the offer to the five children – all equal partners.  Little did he know that he had walked into the proverbial “hornet’s nest”.  A huge family argument ensued, and finally the business broker was asked to leave the room so the five siblings could decide what to do.

The offer was turned down flat.  There was no counter-proposal or even any negotiation on price, terms, or conditions.  The offer was dead.  The business broker had worked on trying to find the right buyer, figured he had, all to no avail – six months wasted.

It turns out that the major obstacle was concern that the operators of the business might lose their jobs even though the prospective buyer assured the sellers that he would keep the current operators on.  Remember, the operators were third generation, related in one way or another to the five owners.

Flash forward some 20 years.  The bakery is still in business with very little growth and still operating on a break-even basis.  the five owners are now in their 70’s; they have never received anything for their equity and have very little hope that they ever will.

The above is a true story.  It shows how a family can own a business and become completely dysfunctional when it comes time to sell the family-owned business.  Although the bakery is still in business (barely), its story also shows that the proposed deal could have satisfied all of the owners’ goals and made that their retirement years a lot more comfortable.

Family-owned businesses make up a lot of the non-public companies in this country and according to published reports, many of them will be up for sale in the near future.

It is important, if the family-owned business is owned by more than one person, that a meeting is held with all of the family owners prior to electing to sell it, unless a strong buy-sell agreement has already been agreed to.  This agreement should establish specific guidelines about what happens if one family member wants out of the business.

The company attorney and accountant should be in attendance along with a business broker.  The reason for the broker is that brokers know what the pitfalls are, what buyer concerns will be and what should be done prior to going to market.

One of the major problems when there is more that one owner is communication.  What about when the one owner who is active in the business decides that he needs a new expensive car and that the company should pay for it?  Strict guidelines should also be in writing concerning salaries, benefits, etc.  When one family member is ready to cash out or another spends a lot of money furnishing his/her office – it is too late to have an agreement drawn up to cover the issues.  The time is now!

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