Patricia Schiff Estess
selling the family business?
Don't decide on economics alone.
offer too good to refuse? Is that what it takes to sell the family
business? It's far more complex than that. "Two parts economics,
three parts need and four parts emotion" is the unscientific
formula people often use to decide whether or not to sell, according
to Ross Nager, executive director of Houston-based Arthur Andersen's
Center for Family Business.
an economic standpoint, family businesses are not radically different
from other successful entrepreneurial ventures. The value that
has been built up in the business does not necessarily ensure
liquidity. And one of the ways of harvesting value is to sell--especially
when a firm is tempted by the steep premiums large corporations
often pay for what a smaller company has cultivated. Investing
gains from the sale of a business may be more financially rewarding
than keeping the business.
"family businesses are usually an integral part of a family,"
says Bill Petty, a finance professor at Baylor University in Waco,
Texas, who has studied entrepreneurs who sell their businesses.
"They don't anticipate liquidating unless there's a catalyst."
catalyst is usually need. Any of the following could spark consideration
of a sale:
business lacks growth opportunities, or the head of the company
thinks that competition is closing in and it might be better to
get out now.
business is looking to grow, and the offer comes from a buyer
whose product lines fit and who wants to keep family members and
key employees to ensure growth.
a dearth of management talent in the family, or the next generation
has no interest in the business, and the head doesn't want the
company run by nonfamily or cannot attract outside management.
members don't get along and are pulling the business (and the
can all be excellent reasons to sell--and many advisors urge their
clients to consider selling when a tempting offer is tendered.
Sherman, President of Berland's House of Tools. His concern
for his employees keeps him from selling his tool superstore.
Photo by Baker Photography
advisors don't realize the decision to sell a family business
is far more complex and wrenching than a spreadsheet analysis.
"Like a divorce, there are `kids' involved in the separation--and
they don't necessarily have to be your own children," says
Nager. "[Owners] are concerned about how the sale will affect
family members, loyal employees and, if the business is in a small
town, the community."
for employees has prevented Dwight Sherman, president of Berland's
House of Tools Inc. in Lombard, Illinois, from seriously considering
the many offers he has had for the family's tool superstore. When
he came into his father's business in 1974, he promised he'd sell
it by his 45th birthday because, he says, "I'm a person who
seeks opportunity, not security." His children are still
young--15, 13 and 7--and "I'm not hanging onto the business
so I can hand something over to them. They're being molded to
be self-sufficient and independent, and I'm not sure I even want
them to be in the business.
we've created a good place to work for our 50 or so employees,
and I worry if I were to sell the business what would happen to
my seven key people. I have an obligation to them because we've
created it together. I couldn't live with myself if the sale of
the business weren't a winning situation for people working here,"
at age 44, Sherman's not selling . . . yet. To satisfy his yen
for variety, he appears on television frequently and makes and
hosts infomercials demonstrating various power tools.
emotional factors influence why business owners say no to lucrative
the family business intact lets them do things for themselves,
their employees and the community. They have the power to launch
public service and philanthropic initiatives. They have additional
opportunities to grow together. (Plus, they have at least one
reason to meet with the family once a year.)
can pass on to future generations the same opportunities and choices
their relatives provided them.
won't be betraying their ancestors' dreams for the family or the
ensure that the sale of the business is not decided solely on
economic terms, think about the emotional aspects before an offer
the family's goals and objectives in mind; this should be a guiding
force in your decision. Also, think about the cash you and other
family members will get. If you're going to invest the money,
be forewarned: "Many people find managing money is not as
much fun as running the business and can be even more difficult,"
yourself what you're going to do with your new-found time and
how you'll feel about the change in status your family might experience
in the community. In the final analysis, it is often in the emotional
side of the "Should we sell?" question that the family
finds its answer.
Schiff Estess publishes the newsletter Working Families
and is the author of two new books, Managing Alternative Work
Arrangements (Crisp Publications) and Money Advice for
Your Successful Remarriage (Betterway Press).