Family businesses are often conceived and formulated around the family dinner table, literally or figuratively. They are often constructed with informal terms, handshakes and hugs, the assumption that relationships will remain in a steady harmonious state among loved ones.
That makes sense. You love each other, after all, and you’re taking a big, exciting, and hopefully profitable leap together. That makes sense, yes, until it doesn’t, until the steady state becomes something else.
Difficult times will come. That’s business. That’s life. And when challenging circumstances do arrive, and they will, the informal terms and handshakes can turn flimsy, less than binding. Contention can — and frequently will — arise, spurring family members to feud over decision-making and dollars. In the absence of agreed-upon rules, arguments ensue, naturally.
This fact makes me reflect on some very wise counsel — take the time to conduct a pre-autopsy. Before taking the plunge, think through what can go wrong and why? Invest the time to answer both questions. Downside should be part of the calculation, although your endeavor is all about upside. This exercise may spare you pain in the future and help you plan for success.
Why do I write this as someone dedicated to helping business owners divest when the time comes?
Family businesses may be originated around the family dinner table, but they need to be fully organized and operated around a corporate conference table with explicit governing documents. This will certainly pay off when the time comes to sell, and that time will come for just about everybody.
And here’s the takeaway: You’ll need to invite strategically compatible professionals around that table to get the sale right, to achieve your goals, to satisfy yourself and your partners. Let me elaborate.
First, I routinely advise sellers to meet with those who’ve gone before them. I want them to talk not just to me and my colleagues. I also want them to spend time with someone who’s walked in their shoes, someone who has sold a business.
Selling a family-owned company is a big deal. This was your life. This often was the life of those who proceeded you. What are the challenges, not only financially but emotionally? The sales price is one thing, but what is it like to be finished?
I’ve encountered more than a few sellers who haven’t given sufficient thought to what’s next. They’re focused, reasonably, on the transaction. But you also need to answer the question: What do I do next when it’s over?
So that’s the first person you need around that table, in my opinion. But wait, that’s not all.
You’ll also obviously need legal representation and ideally a wealth manager to execute the transaction successfully. As I always say, business owners run their companies every day, and if they do it well enough to attract buyers, they’re probably pretty good at it.
What they’ve probably never done? Sell their baby, their company. That’s not just complex. That’s the seller’s legacy. That’s the seller’s retirement. That’s the seller’s family and employees. Make the most of it. You can achieve your objectives with assistance.
But here’s a critically important caveat. Sellers need experts around that table, but that’s all for naught unless that team is on the same page. I’ve seen more than one case where they weren’t, and that disharmony can derail a deal.
When your representatives don’t fully represent you and what you’ve communicated, negotiations can go south of sideways. When all the players aren’t on the same page, new terms can be introduced, even those that conflict. That’s more than confusing for a buyer who is working on strategy and financing. It can crush a transaction.
And let me add that the team needs to respect each other. If one party thinks another doesn’t know what they’re doing and therefore goes in a divergent direction, what message does that send to the buyer?
Bottom line: A family business can be a beautiful thing. Parents, children, and other relatives can spend their waking lives collaborating on something meaningful and stimulating that feeds their families and fuels their futures. But don’t treat it like a potluck picnic. Don’t forget that it is still a business, and relationships can turn, particularly when it comes to money — boardroom table, not a kitchen table.
When the time comes to sell, it all ends at that boardroom table of compatible professionals from wealth advisers to lawyers. You get one crack at this. Get it right.
Christopher Helmrath is the managing director of SC&H Capital, the investment banking and advisory practice of SC&H headquartered in Sparks. In addition to his 30+ years of investment banking experience, he has served as a corporate strategy professor in two graduate schools of business: the Loyola University Sellinger School of Business and the Johns Hopkins University Carey Business School.