Among the growing number of business owners looking to sell their business, JR and Sue Ellen Pawlenty are in the market to sell their company Pawlenty Energy. Recently Tilting the Scales highlighted Successfully Selling Your Business: Top 6 Potential Pitfalls and So You Might Sell Your Business Someday: Do You Need a Broker? For multiple reasons, such as family, health, age or interest, you have decided to sell your business. Now what do you do?
4 Tips – No Matter the Buyer
- Get your House in Order – all of your records, especially financial records should be reviewed by a competent accountant and be consistent with GAAP accounting methods.
- Assemble your Asset Financial Information for Buyer Due Diligence – contracts with buyers, employee policies and contracts, and overall business structure for legal and tax implications.
- Business Valuation – get an early idea from a competent valuation adviser and ask your expert for ideas to improve valuation, including identifying and perhaps courting your current competition. Careful: it may not be worth what you think, know what you need to retire.
- Plan – identify specific shareholder objectives and a transition plan. If your primary plan is a family transition plan, WAIT, there’s much more!
9 Specific Tips for Succession Planning of a Family Business
Family businesses account for a staggering 50 percent of the gross domestic product of the U.S., and it is not just in small storefronts or website businesses: 35 percent of Fortune 500 companies are private or public companies that are controlled by families. Key issues for succession planning include:
- Generational Transition – only a third of all family businesses successfully make the transition to the second generation.
- Alignment of Family Interests – alignment becomes more problematic as members retire and turn over the reins to the new generation and expect retirement income from the company.
- Balancing Financial Returns – buyout agreements are challenging when retiring family members look to the balance sheet value rather than an earnings capitalization model.
- Interfamily disputes. Family member interests may not be aligned, becoming even more difficult upon a family owner’s divorce or death and the surviving spouse holds stock (and voting rights) but is not actively contributing to the business.
- Estate and Inheritance Issues. Taxes and probate upon a family owner’s death can complicate business continuation.
- Identify and Groom the Successor. Identify a competent successor then develop them to assume the headship of the business by on-the-job training, working under mentors and advisors, and delegating before the actual passing on of the baton.
- Document the Succession Plan. A concrete, straight forward and not open to interpretation at a succession plan should be written: identifying the successors both in ownership and management; roles of both active and non-active family members in the business; and the support system for the successor from family members as well as the company.
- Create a Plan for the Transition. Establish how the business will be handed over – will the successor purchase the company, or will it be gifted? And when? If sold, what purchasing options will the older generation offer the successor? Minimizing taxes to all is critical.
- Communicate. The Plan must be timely communicated to the family and those active within the business, as well as non-active members, preferably by the current ownership. Every family member and employee must fully understand how the succession will work, and what their part is within it all.
Tilting the Scales in Your Favor
You can’t sell your business like you sell your car. It’s more like selling your house, but even more challenging than just timing the market, de-cluttering the inside and slapping a coat of paint on the outside. Beyond just the physical assets and the economic climate, you are dealing with people – employees, customers and vendors. Even more complicated is the addition of continuing family ownership, management and control to the mix. It takes time, planning, decision making and then decisive communications to all concerned for success. Success won’t happen overnight; failure almost certainly will happen if you don’t.