Running a family business can be incredibly exciting and rewarding. However, the time will inevitably come when you will want to sell or pass on the business. This may be down to retirement or simply wanting to hand the reins on to somebody else and enjoy the fruits of the sale of the business.
Selling your family business – beware the following common problem
Perhaps you want to hand the business on to another family member to take over the company, or alternatively to sell the family business to an outside interest. Both have their distinct advantages and both are fraught with difficulties.
Passing the business on to a relative can help to keep the business in the family, for example, but may upset other family members who feel they have been overlooked.
And what if it makes more commercial sense to sell to someone from outside the family? That in itself has its difficulties, with family members likely feeling that the business should stay in the family and potentially being upset at an external sale and, effectively, what they see as the end of the family business.
These are just a few of the common problems which can arise when you come to sell your family business. Try to avoid them if at all possible. Some others include:
• Management and minimisation of tax liability — This can include Capital Gains issues, inheritance tax and a number of other potential liabilities which could easily crop up from the sale of your business. Even if you keep the business within the family, there are a number of tax implications which need to be accounted for and which many people are unaware of without specialist legal and tax advice.
• Keeping the family members happy — The sale of a family business needs to be handled very delicately. To the family members employed by the business or involved with it as a shareholder, they’ll have a deep personal connection with the business and will want to ensure the sale is handled in the best possible way. If there are internal fractures or worries about who the business is being sold to, this could cause family breakdowns which could impact negatively on the business itself.
• Protecting against a loss of direction — If you are selling the family business to another member of your family, you’ll want to ensure that it continues to be a success so that your family are able to make the most of the businesses’s ongoing success. Ensuring that your successor is able to maintain the businesses’s direction and continue with this success is a vital part of planning for the sale of the company.
• Clear aims and objectives — You should ensure that it is made clear what your role will be following the sale. Will you stay on as a consultant or advisor? If so, this must be made clear as otherwise the new owner or other family members could come to resent your ongoing involvement (and what they might see as interference) following your official departure from the company.
• Withdrawal of capital from the business — If you provided a capital investment in the business when you started it, or at any point afterwards you may feel you want to withdraw this capital investment when you come to leave or sell the business. What effect will this have on the financial position of the business? Will it become vulnerable once that capital investment is withdrawn?
The importance of planning in advance
It’s often best to try and plan your exit from the family business at least a couple of years in advance. That way, you have the time to decide on the best way to approach it, organise the succession and ensure that everyone knows what is going to happen. A planned retirement day will ensure that everybody is on the same page and provides a deadline which everybody knows and is able to work towards.
Family Business – Priming your successor
If somebody in your family is willing to take on the business, you will need time to prime your successor and ensure he or she is comfortable with everything that is involved with running the family business. Too often, business owners ensure their successors already know what needs to be done and subsequently find out that they’re being asked to come back on board and sort out mistakes which have been caused by the new owner not understanding everything properly. This can defeat the object of your peaceful retirement and can be mitigated against by ensuring proper forward planning.
Whether you’re selling the business to another family member and essentially handing over the reins, or whether you’re looking to sell the business to an outside interest for commercial gain, the sale of a family business must be handled carefully — far more so than the sale of any other sort of business — as family relations could become strained otherwise. There’s often a lot of emotional investment in a family business and after all the hard work you’ve put into building it up it would be a huge shame for people to fall out when you come to retire or pass the business on – especially if that turns into a formal family business dispute.
Here’s a useful link to an article on the website of business gurus, EOS, the Entrepreneurial Operating System, entitled “I Bought The Business, But My Dad Won’t Let Me Run The Place”
How To Sell Your Family Business – getting the right professional advice
Enlisting the help of business solicitors with experience in selling family businesses will help to ensure that the sale goes through smoothly and that potential problems are avoided as best as possible.
Getting the right lawyer and accountant on board at an early stage is important with regard to tax and other potential costs and liabilities which you otherwise might not be able to foresee and which could potentially derail an otherwise promising sale.
Peace of mind and harmonious family relations are things which simply cannot be bought, but investing in the right professional legal advice can go a long way towards ensuring it.
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