Your family business likely means a lot to you. After all, it has provided for you, your family, and your community for decades. In some situations, it might even be generations. Unfortunately, all good things eventually come to an end.
Maybe you don’t have someone around who wants to take control after you retire, or maybe it’s just time to sell the business and enjoy the monetary fruits of your family’s labor.
In either situation, this is one transaction where you want to get the best deal possible. You don’t want to sell your company and, with it, your entire legacy for less than it’s worth.
That’s not just a bad financial decision. It can also feel insulting or shameful, depending on how attached to the business you are.
So, to help you maximize your profit and get through this bittersweet period, we’ve created a guide to the various things you can do to maximize your profits when selling a family business.
Let’s get started.
1: Learn How to Sell a Family Business
This goes without saying, but you should look into how you properly go about selling a family business before you start making any moves.
That sounds like common sense, but many family-owned businesses are very casual. While they’re highly successful in practice, the more “business world” end of things tends to be something they’re less experienced in.
Beyond the stuff we’ll be talking about here, there are behind-the-scenes processes such as tax liabilities, money management post-sale, and more that you need to be fully aware of.
So, before you even start implementing any of these strategies, make sure you do your research properly and seek assistance from someone like us to help you with selling your company.
Even if there are fees involved, it will be well worth the small expense when you get a bigger amount for the sale and don’t have to stress out nonstop.
2: Maximize Your Company’s Value Before Attempting to Sell
If you want to maximize your profits, you need to work toward increasing your company’s value long before you start setting up the sale of the business.
The more your business is worth, the more you can sell it for.
There are a variety of ways to increase your company’s value.
Primarily, you want to focus on debt elimination, profit increases, and maintaining your assets.
With debt elimination, it’s unreasonable to get entirely out of debt. Every business is going to have some sort of liability, or it isn’t leveraging its opportunities properly.
Focus on paying off debts that are impacting your bottom line and draining value from your company. These can include paying off long-term loans on your commercial building, paying off accounts that you owe, and more.
However, short-term debts such as the loan you got to buy new equipment a few months ago also count.
Increasing your profits is difficult because you don’t want to cut corners and lose customers before selling your business.
However, putting a little more toward marketing, expanding onto an online platform for more reach, or increasing the frequency of promotions that are financially beneficial can all help without costing too much or cutting corners.
Finally, make sure your assets are well-maintained and they’re not depreciating in value. You don’t want the inventory to sit around and become obsolete because that is part of your company’s value, and you don’t want patents and everything else you use for a competitive edge to run out.
The more you can increase the company’s value, the better off you’ll be when it’s time to sell.
3: Do Not Sell Alone
As a family business, you’re not bringing in Amazon-sized profits. You might be highly successful, but expenses still matter to you. We get that.
That typically encourages business owners to try to sell their businesses on their own or with minimal help. That is not the optimal way to do it.
You might save a bit of money on consultation fees, service fees, and other things, but the likelihood of you getting a bad deal because you don’t know every little detail of selling a business is ridiculously high.
The companies that do handle their own M&A needs are typically so large that they have their own legal departments and entire teams solely dedicated to such matters.
As a family-owned business, not only do you not have those resources, but it’s unlikely that you have the necessary experience to get everything right on your own.
As such, it is always better to hire a consultation service, a broker, professional M&A advisors, and any other services that the consultation service recommends.
This will cost some money, but it will help you get much larger profits, minimize the chance of any legal issues in the future, and make the whole process a lot more successful.
4: Target Larger Buyers
We’ll be talking about three types of buyers, and that’s because every business is different. Your optimal buyer might be different than one of the other buyers we will talk about. This is another area where a consultation service comes in handy because a specialist can identify what your best approach is.
First, let’s talk about larger buyers with deeper pockets.
These are investors, large corporations, business moguls, etc. One reason to target these types of buyers is that they have plenty of financial resources, and if your company is desirable enough, they might try to close the deal as soon as possible by giving you an offer that’s too good to refuse.
Of course, there are issues with this type of buyer.
Namely, you’ll have to be appealing to them. A local ice cream shop with three locations and only 4 active months per year probably isn’t going to get their interest.
However, a family-owned manufacturing company that provides that business with the resources it needs for its own products might be extremely attractive.
Think of a family that owns an oil rig that supplies several gas stations. One of those gas stations would love to take over the supplier of their oil and have complete control over their supply.
That’s just one example, but you get the point.
Other things that might attract bigger buyers are useful patents, region-specific brand names that will allow them to expand easily, etc.
This is definitely a route to explore if your business warrants it.
5: Target Competitors
This is the second type of buyer we want to talk about, and while it might seem odd, it’s the perfect opportunity for selling your family business at a premium price.
Let’s say you have two potential buyers interested in your business. One is a new investor looking to buy their first business, and the other is a long-term competitor who not only knows how much your business is worth outside of its intrinsic value but they also know how much trouble you’ve caused them over the years as their competitor.
Who do you think will be willing to pay as much as possible for your business?
That’s right. Your competitor will. Your competitor has the incentive of getting rid of your business or at least its position as a competitor if it keeps your brand around, it can gain any patents or unique assets you have leveraged against it, and it gains another location in the same industry.
An investor looking to buy a business doesn’t have the personal motivation to pay a premium. They want a good deal so they can see if they can turn a profit.
This makes competitors great options. However, it’s not all about the financial side of things, either.
Your competitor might not want to completely merge your company into their own. They might want to keep your brand around to keep its customer base and unique brand identity, but since they own it, they’ll get the benefits of those things now.
That can help preserve your legacy to an extent, and since it’s your competitor making the purchase, you know that they know how to keep it running smoothly.
6: Target a Potential In-House Heir
This one is going to step away from monetary profits just a bit. However, if your family business has been in your family for generations, maybe it’s not all about the money. You might be willing to give up a little bit of financial profit in exchange for preserving your family’s legacy as much as possible. Considering the sentimental and historical value that has, is that not a form of profit?
In that case, your next buyer might be right under your nose.
Obviously, family members are always a go-to when you want to pass a business down, but what if you don’t have kids or your kids aren’t ready to run the business? What if they simply don’t want to?
You don’t have to give up your legacy. With a unique agreement, you can make it affordable for your most trusted workers to take over the business.
This comes with a seller’s note. A seller’s note is an agreement you make that phases you out of the business and lets the acquirers start to take charge. Since your workers likely don’t have the funds to buy the business, they pay you in increments.
Those increments can be a percentage of profits until the total is paid off, monthly payments at a fixed rate, or anything you want, really. It depends on how you structure it.
With this approach, you probably won’t get much more than the business is worth, but you can set it up so those you trust to run the place can give you what it’s worth over time, and the business is in good hands.
This isn’t a maximized financial profit, but it does carry significant sentimental value. It can also preserve the livelihoods of all your employees and the community members who rely on you.
You won’t have to worry about a new owner replacing all the people you’ve known for years, turning your family business into their new location, or any of the other things that usually make business owners in this sector feel remorse upon selling.
7: Structure the Sale to Minimize Tax Liabilities and Fees
Earlier, we mentioned there will be fees that you have to accept if you want to get it done right. However, there are fees you want to minimize, such as bank-related fees, restructuring fees, and of course, tax liability.
The way you do this largely comes down to how you structure the sale. You can sell a business in parts to minimize immediate tax liability and spread it out over multiple transactions, utilize various options to avoid certain regulated fees and more.
That’s an entire topic of its own, but it should be at the top of your research priority list when you think about selling. Taxes and other post-sale fees can eat into your profits dramatically.
8: Protect Your Profits After the Sale
It’s not enough just to make as much money as possible. This is a massive earning event, and history shows that many people who aren’t used to such large sums of money waste their money far faster than expected. Just look at lottery winner statistics.
You don’t just want to make a lot of money. You want to make sure that the money you earn is used to maximum effect.
For most family business owners, that means having a solid plan set up for after the sale. This will include a new investment portfolio that leverages some of the profits to make more money, a budget for each year that ensures the money doesn’t run out prematurely, and in general, plans that will keep you in good financial health throughout your retirement.
You’ll also have to look at what you have to leave behind as a legacy since you sold the family business. The financial profits you gain will be your legacy, and if everything is spent, you can’t recoup that easily.
Contact Final Ascent for Help Selling Your Family Business
If you’re ready to sell your family business, or you’re at least entertaining the idea, reach out to us to get industry-leading consultation from our business selling advisors, who will lead you every step of the way. We take a start-to-finish approach that starts with your prep phase and ends with planning your post-sale finances.
Contact us today if you want the best assistance around!