The Big Conversation You Need to Have with a Family Member

Your family business is your passion and your legacy. But do your family members feel the same way? Before you entertain strong ideas of selling the business to a relative, you need to ask some direct questions that will help ensure your business is in good shape after the transition. Sunbelt helps walk you through the big conversation.

1. Does your family member really want the business? And are they prepared to run it?

Here’s a likely scenario: you’ve spent decades building a profitable business and a great reputation in the marketplace. But it’s time to enjoy a little R&R, and you’re ready to sell to a family member. It’s important to know if your life plan aligns with the person to whom you’d like to sell. Take the time to have an open conversation with your family member – complete with transparency and no judgment. Ask your family member to share their life goals and consider whether this opportunity jives with their hopes and dreams.

If the two of you are on the same page, a good next step would be to explore training options that would help set up your family member for success. Outline a training plan with a document that captures milestones and the major dates associated with the transfer in ownership. Establish a timeline that is mutually agreed upon and memorialize it in writing. It’s critical that you establish trust with your family member and reassure them that there will be a conclusion to this process with the end goal of their taking over operations.

2. How much is your business worth to you? Does your family member agree with that value?

You no doubt have a number in mind when it comes to the value of your business. Perhaps your business involves key real estate holdings or valuable machinery. Maybe you have a strong book of business or a pipeline with guaranteed revenue for the foreseeable future. Whatever the case, it’s important to make sure you and your potential buyer are aligned on the value at which you hope to sell your business.

As you talk about transitioning, be transparent about what you think the business is worth. It’s important to acknowledge that you may believe your business is worth more than the value it would yield in the marketplace. You can avoid some awkward moments by working with an attorney and outside business appraiser to determine a fair value. These third-party partners can help family members navigate sensitive conversations and ensure that your entire transaction process is buttoned up, legally.

One other item to consider? You could transfer some of the ownership to your family member prior to selling the business. A financial planner can confirm whether this would be advantageous to your estate planning efforts.

3. When you sell the business to a new generation, are you prepared to surrender control?

Business owners need to face the music and acknowledge that they will need to give up control of the company when they completely divest their holdings. A business broker like Sunbelt can help you consider options to stay on as an employee or officer. One other possibility involves holding onto a board seat. Whatever your preference, it’s important to talk through the future you envision with your prospective buyer (and family member) to manage expectations and ensure you both agree.

Some business owners hope to maintain company leadership and retain some rights to profit after a deal. If that’s the case, make sure you work with an attorney and capture all agreements in writing. The reality is that many CEOs are voted out of company leadership after they’ve sold to a new owner and surrendered their voting leverage.

The success of your business is built on a foundation established by your hard work, commitment, and diligence. A successful transition depends on those same traits. By focusing on transparent conversation, committing to a transition plan, and formally establishing any agreements in writing, you can ensure that all parties involved are aligned and ready for what’s next. Do you need some help working through these phases? Sunbelt can help. Contact us and learn how we can guide you through the next big move of your career.