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Family Business: The Keep or Sell Decision


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The decision to keep or sell a family business is usually not an easy one. But answering a series of key questions can help lead you down the right path.

Many business owners come face-to-face with a difficult decision: whether to keep or sell the family business. Several triggers can prompt this question, including unsolicited offers, favorable market conditions, necessary growth capital or the lack of a family successor to lead the company. But regardless of how you arrive at this point, determining the right course of action typically involves answering complex questions, reconciling competing priorities and grappling with strong emotions.

Even with the best advice, working through the pros and cons can be difficult. However, following a clear decision-making process can help. The following three fundamental questions are based on our experience serving family businesses and observing the considerations that allow owners to move forward with greater clarity and confidence. 


Is the Family Business an “Heirloom” or a “Financial” Asset

Regardless of your reasons for considering a sale, the decision can often be an emotional one. The business may represent years of sacrifice and hard work, and you and your family may have a strong personal connection to the business and the values that it reflects. Some business owners feel as if there is an implied contract with prior generations to keep the business in the family.  

You should acknowledge these emotions and discuss them openly, especially with the current generation, who may not feel the same loyalty or emotional attachment to the business that you do. The feedback you get will help you to determine whether the business is an heirloom-legacy asset or a financial asset from your family’s perspective. 

If you conclude that you are unwilling to part with the company, start working towards a strategy for keeping it. However, if you determine that your family views the business more as a financial asset, a sale may be the better course of action. 


Is the Family Prepared to Continue Operating the Business

Are there family successors ready, willing and able to step into management and leadership roles? If so, can you groom these family members for the roles in a reasonable timeframe? 

If not, is the family willing to have a non-family executive run the business? If the answer to these questions is no, you should consider selling.


Can the Family Can Afford to Sell the Business

Finding the answer to this question involves a two-part exercise: valuation and cash flow analysis. 


Establishing a fair market value is the starting point to assessing the future of your business. One way to accomplish this is to retain a reputable firm to prepare an independent business valuation. This can help level-set discussions around the likely proceeds from a sale. In short, the appraised value of the business, less transaction costs and taxes at both the entity- and individual-level, provides a rough estimate of this amount.

It is important to note that a formal business valuation usually assumes a transaction price between a hypothetical willing buyer and seller, both having reasonable knowledge of relevant facts. For the sake of the business valuation, these are facts that the business owner shares with the valuation preparer — as opposed to facts that have undergone a buyer’s due diligence.

It is also worth noting that the valuation will not include a strategic buyer premium or a premium for a high-quality management team, both of which could result from a well-planned and orchestrated business sale process. That said, a valuation can be a reasonable starting point for preliminary planning purposes.

Cash Flow Analysis

Here, the key question is, “Will the net proceeds, if invested in a diversified investment portfolio, satisfy the family’s cash flow needs compared to a projection of how the company’s future earnings might sustain subsequent generations?” In practice, selling a private business often leads to lower cash flow for some or all of the following reasons:

  • Loss of financial leverage
  • Sale at lower multiple than reinvestment opportunities in the public market
  • Loss of employment compensation and benefits
  • Impact of taxes

On the other hand, you also need to weigh the probability of future business risks that would shift the pendulum in favor of a sale, including the following: 

  • Industry dynamics
  • Capital requirements
  • Leadership transitions
  • Disagreement among shareholders

One More Consideration: Is It the Right Time to Sell the Business

When working through the above questions suggests a sale is optimal, it then becomes a matter of determining whether it is the right time for selling your business. The economy, market conditions and industry factors will all impact your ability to sell and the relative value the seller receives. 

Further, company-specific factors can also impact the timing of a potential sale. For instance, is your business going through a major initiative, such as facility replacement or expansion, new customer onboarding or launching a product? 

Could greater value be realized if the sale were delayed until the benefits of the initiative are recognized? Granted, there is an element of business judgment that comes into play in such scenarios. But you must weigh the potential upside in selling price against the downside risk that the initiative fails or is delayed as well as the time value of money.

A framework for the keep or sell decision

While these questions provide a framework for the keep or sell decision, they do not remove the inherent complexity and uncertainty most business owners face in reaching a conclusion. For help with this process, including understanding if a sale will meet your family’s cash flow needs, please reach out to one of our advisors. They can work with you and the other professionals on your team to develop an optimal strategy for your family’s circumstances.

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This information is not intended to be and should not be treated as legal, investment, accounting or tax advice and is for informational purposes only. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting or tax advice from their own counsel. All information discussed herein is current only as of the date appearing in this material and is subject to change at any time without notice.

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