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Key Issues for Business Owners to Address Prior to Selling Their Business

27May 2010

As many of you know, I do a fair amount of consulting with family owned businesses. One of the common issues I help business owners and their families work through is the sale of their business (either preparing to do so, or dealing with the results afterward). Recently, a friend who meets with a number of business owners starting to think about selling their businesses asked me to outline some of the key issues that I help families think through. Here is what I came up with:

Integrating Business Ownership Succession, Business Management Succession, and Personal Estate Planning. Most people don’t distinguish between ownership succession planning and management succession. This creates significant problems — especially when the owner wants to sell but the company doesn’t have the management ready to take over the company. Often we have to work to develop a “bridge plan” for getting an interim management team, so the sale can occur.

A second common problem is when the owners’ personal financial estate planning isn’t integrated with business succession planning. Business owners want to get their financial investment out of the company when they sell it, but if not done correctly, they can pay excessive capital gains taxes.

How will the sale of the business affect your family? The sale of a family business significantly impacts the whole family. This includes family members who work in the business and those who do not work in the business. There can be issues of “fairness” within the family — those who work in the business may lose their jobs (or the perks previously associated with ownership). But if they own some of the business, they can reap a large financial benefit while non-owning family members get nothing.

A secondary, but significant issue, can be the impact of the sale on the career development for succeeding generations. If the family has a large influx of money from the sale, this can create challenges (and disincentives) for career development for younger family members. How the sale is structured — and how things are communicated to the family — can help avoid these issues.

How do you decide how much money to give to family members?
Key questions we work to answer are: How much is enough? How much is too much? In reality, we have learned these are not the most important questions. Rather, we have identified the key factors that avoid destroying family members with money.

What plans do you have to keep the family together in the coming years?
Often families in business communicate primarily about the business when they get together. When the business goes away, many families struggle to stay together — they have no history or tradition for family gatherings outside of the business. So they need to answer questions like: What will be the basis for family interactions and gatherings? What type of communication process will be in place? How will you keep the extended family connected?

The most common “big impact” mistakes owners make when selling their business:
-Not involving their spouse in the process.
-Not preparing their children for managing the wealth they will be receiving.
-Not involving children’s spouses in the process.
-Not integrating the sale of the business with their personal / family estate planning, and paying unnecessary taxes.
-Not developing an adequate plan to finance buy-sell agreements
(between family members, or in the case of death).

The reality is: Most business owners and families need help both “thinking through” and “working out” a business succession plan. My advice to business owners: Don’t risk losing two of your most valuable assets you have spent years building (your business and your family) by making un-informed decisions. A little “pre-work” with a family coach can go a long way to saving a lot of heartache later on.

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