For some business owners approaching retirement age, the next step is clear: Transfer the business to a son, daughter or other family member who knows the company and is eager to run it. But many owners don’t have that option. Their relatives may not be interested in or qualified for the job, or the owner may need the proceeds from a sale to retire in comfort.

Selling a family business, however, can be harder than selling other types of closely held companies. It’s important, therefore, to get good professional advice as soon as you make the decision to sell.

Advisors enhance value

To buyers, your company represents a business opportunity. The memories and friendships you associate with it have little value to them. This includes loyalty to family members and employees and special working relationships with particular customers and vendors. Although you’ll want to do what you can to protect your stakeholders and preserve your culture and products, you also need to be pragmatic.

Start the process by asking an advisor to assess your company’s current market value and find ways to enhance it. Your advisor should be able to shine a light on your blind spots, such as poorly performing product lines that you’ve been unwilling to cut simply because you’ve had them since you founded the company.

It’s common for family-run businesses to keep highly compensated, yet ineffective, employees on the payroll because they’re related to the owner. But such practices reduce your business’s value to prospective buyers. So don’t be surprised if your advisor suggests some personnel changes. Advisors also may recommend selling off certain business units or monetizing assets for higher multiples to maximize your exit value.

Owners shape up

Enhancing value is only one part of preparing for the market. Buyers are just as concerned about risks associated with acquiring your business. During the due diligence stage, prospective buyers review documents related to finances, regulatory compliance, intellectual property, legal obligations, employee benefits and client and vendor contracts, looking for problems that might prove costly or time-consuming down the line.

For many small businesses, filing and administrative tasks aren’t a top priority. If this is true of your company, start organizing your records immediately so that they’ll be in good shape when a serious buyer emerges.

Similarly, you may be used to making strategic decisions — such as opening a new store — informally, with no paper trail. That needs to change going forward. And you’ll need to reconstruct all of your company’s milestones and key strategic moves and organize them into a comprehensive summary for prospective buyers.

Looking forward

Some personal decisions need to be made at this stage as well — for example, whether you want to cut ties with your business after you sell it or stay on in some capacity. Your buyer may request you to run the company during the transition period or provide regular input as a consultant. Or you could look for a buyer that will begin as a minority owner with the option to take a majority stake in a few years.

Whatever you decide, make personal financial and estate plans before you sell, so you don’t have to worry about income during retirement or how you’ll someday pass on wealth to your heirs. When possible, involve family members who’ve worked for the company — and even those who haven’t — in your plans to sell and retire. It can help mitigate hurt feelings and avert family arguments.

Challenges ahead

Whether you’d once hoped that a family member would eventually take over your business or you’ve planned to sell all along, the selling process can be difficult. In addition to getting your business in shape and making future financial plans, you may need to deal with your own emotional ties to the company, not to mention family politics.

This is not an easy process, but we have walked many business owners through it. Contact us today for assistance. We would be happy to help.