How Can a Family Business Prepare for a Sale Several Years in Advance?
Short answer. Prepare by keeping reliable financial and ownership records and reducing dependence on any one person. Learn what could make the business valuable to a buyer. Align family owners on their goals and decision process, and review the company's structure with qualified advisers before a sale process begins.
Prepare for a future sale by making the business easier for a buyer to assess and run. Keep reliable records, document important relationships and processes, and agree within the family on what a sale would need to accomplish. Starting early gives owners time to address gaps before they become obstacles in negotiations.
Make the Business Understandable
Keep financial statements, tax records, customer agreements, supplier contracts, ownership records, and material obligations organized. Ensure that reporting reflects how the business actually performs. Buyers will examine earnings and cash needs, along with contracts and risks. Clear records help the family answer questions consistently and let advisers identify issues that deserve attention.
Document how the company serves customers and depends on key people, including employees, suppliers, and family members. If critical knowledge sits with one person, transfer it into repeatable processes and give others appropriate responsibility. This work can strengthen continuity whether the family sells or continues to own the company.
Understand the Buyer's Perspective
Identify features that may interest a buyer, such as market position, technology, customer relationships, skilled employees, or room to expand. Do not assume that a buyer will value the company only by its current financial results. A strategic buyer may see benefits that another buyer does not. Ask experienced advisers to help assess the likely buyer pool and factors that could affect value.
Review the balance sheet and company structure with your CPA and attorney. Resolve avoidable recordkeeping problems and understand liabilities and guarantees, along with contractual limits. If a transaction could create tax consequences, get advice based on the owners' circumstances and the proposed structure. The goal is to know what questions a buyer may ask and have accurate answers ready.
Align the Family Before a Process Starts
Family owners should discuss why they may sell, what conditions would make an offer acceptable, and how they will make decisions. Discuss views on ongoing roles and employee matters, as well as the distribution of proceeds. Owners may not agree on every point, but they can set a process for resolving disagreements before outside parties become involved.
Preparation also means comparing a sale with the value of remaining independent. The family can consider expected income, the capital needed to keep the business competitive, and responsibilities that come with continued ownership. The owner's pre-sale checklist and sale-versus-independence comparison offer useful starting points. Discuss proceeds among family owners and the tax and cash flow effects with qualified advisers before a transaction is underway.
There is nothing right or wrong about either approach because the strategy is relative to the investor's own objectives.
Sources: Centimillionaire Strategies, The Single Family Office. Informational only, not financial, legal or tax advice.