If you own a family-owned business, you may feel as though there are more factors to consider when it’s time to sell. In this article, we’ll examine some of the best options that business owners can use. You’ll want to keep in mind that both internal and external strategies are available to you. Let’s take a closer look. 

3 Types of Internal Transactions 

One of the top options for selling a family-owned business is to simply transition the ownership of the business within the family. This is an often-exercised option for many reasons. For example, one of the benefits to this strategy is that selling a family-owned business to a relative will keep the business in the family. Oftentimes this decision best suits the emotional preferences of the owner. A major risk is that the family member will fail to operate the business successfully, and this point underscores the importance of only transferring ownership to a family member that is ready for the task.

A second option is what is known as the Employee Stock Ownership Plan (ESOP). ESOPs are often utilized in companies when selling to a third party could prove to be problematic or difficult. Architectural, construction and engineering companies are all good examples of businesses that can be difficult to sell to third parties.

Choosing to hire a CEO who manages the owners exit strategy is a third option for business owners to consider when selling. This is a time-tested strategy that many business owners have appreciated. Using this CEO strategy allows the owner to essentially retire and live off of company dividends while at the same time delaying the sale of the company for years.

External Transactions to Consider

The previous three examples specifically focused on internal transactions. Now, we’ll turn our attention to external transactions, as there are several viable external transactions that work for family-owned businesses looking to sell. 

A management buy-out or MBO, is an option that shouldn’t be overlooked. Selling to key employees with the company has many pros, for example, key employees understand the business as well as its current and future challenges and potential.  An MBO does have negative aspects to consider such as the fact that owners typically don’t receive the highest possible asking price as they have to provide financing.

A second external transaction for a family-owned business is an outright sale to a third party. One pro of a third-party sale is that an all-cash closing is possible and after the transaction is settled, the owner is free of the business. A potential downside of a third-party sale is that the sale process could be lengthy.

A third option for family-owned businesses to consider is an initial public offering (IPO). Companies with revenues of $100+ million are seen as a potential candidate for IPOs. An IPO can receive a high valuation; however, it is important to note that management will need to remain with the company.

Business brokers and M&A advisors are experts in helping family-owned businesses chart the best path forward. No two family-owned businesses are the same. An experienced brokerage professional can evaluate your business and help guide you towards the sale option that makes the most sense for your business and your personal situation.

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Before delving into the specific steps that benefit business owners who are looking to sell quickly, it’s crucial to understand the buyer’s viewpoint. For many buyers, purchasing a business is a once-in-a-lifetime event, often involving significant personal and financial risk. Therefore, sellers must take proactive steps to ensure their business is as appealing and risk-free as possible. 

There are three key areas to focus on for a successful exit: 

1. Prioritizing Pre-Diligence
2. Reducing Perceived Risk
3. Engaging the Right Professionals

By focusing on these areas, you can instill buyer confidence while increasing the likelihood of a smooth transaction.

Step 1: Prioritizing Pre-Diligence

The first step to preparing a business for sale is to view the process from the buyer’s perspective. Buyers will conduct due diligence to assess the financial health, legal standing, and overall stability of the business. If you are able to anticipate and address potential issues beforehand, you can streamline the process. 

Well in advance, business owners should work with qualified professionals to ensure that all documentation is in order, financials are accurate, and the business complies with all relevant regulations. This pre-diligence process will create fewer hurdles during the buyer’s due diligence and provide a smoother transition to closing the sale.

Step 2: Reducing Perceived Risk

One of the most effective ways to make a business more appealing to buyers is to minimize perceived risks. Buyers are naturally cautious about purchasing a business, and any factors that raise concerns can hinder a sale. 

Here are a few areas where sellers can reduce risk before listing:

• Revenue Concentration: If the business is overly reliant on a few key clients or customers, consider diversifying the customer base or developing long-term contracts that mitigate this risk.
• Employee Contracts: Secure and well-structured employee agreements can provide stability and reassure buyers that the business has a reliable workforce.
• Clear Customer Contracts: Well-drafted and easy-to-understand customer agreements can reduce legal uncertainties and increase buyer confidence.
• Addressing Legal or Financial Liabilities: If there are outstanding legal issues, potential liabilities, or financial discrepancies, it’s wise to resolve these before listing the business.

By addressing these concerns in advance, sellers can significantly increase how attractive buyers will perceive their businesses to be. 

Step 3: Engaging the Right Professionals

The right team of professionals can make all the difference when selling a business. Business brokers, M&A advisors, accountants, and legal experts help guide sellers through the complexities of the sale process. They can assist with everything from developing an exit strategy to ensuring that the sale adheres to all legal and financial standards.

Engaging professionals early in the process ensures that the seller has the right advice and support to navigate negotiations, minimize risk, and maximize the business’s value. These experts can also help identify and address potential red flags that might otherwise hinder the sale.

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If your business interacts with customers, it’s inevitable that at some point, you will receive customer complaints or negative feedback. The key to turning these situations into opportunities is how you handle them. Ignoring or dismissing customer complaints can damage your brand’s reputation and customer loyalty. However, addressing these issues effectively can improve your operations, boost customer satisfaction, and even create positive PR for your business. Here’s how to approach customer feedback and complaints in a way that benefits both your company and your customers.

Dealing with Angry Customers

When a customer encounters a problem, they may approach your business expecting frustration or conflict. It’s crucial that your customer service team or salespeople don’t mirror this attitude. Instead, they should remain calm, empathetic, and focused on finding a solution. Listening actively to the customer’s concerns is key. People want to feel as though they are being heard.  

It’s important to note that some employees may take negative feedback personally, but this can escalate the situation. Trained customer service reps understand that the issue is most likely a result of the product, service, or experience, not with them as individuals. Empathy, patience, and professionalism should always guide the interaction.

Take Quick Action

Speed is critical when addressing customer complaints. The longer a problem goes unresolved, the more dissatisfied the customer becomes. In fact, quick action can turn a dissatisfied customer into a loyal advocate. Responding promptly shows that you care and are committed to resolving their issue.

To facilitate this, empower your customer-facing employees to take immediate action. If they need managerial approval to resolve a problem, it can create unnecessary delays, which might aggravate the customer further. By giving your team the autonomy to make decisions and fix problems quickly, you demonstrate that customer satisfaction is a priority.

Get Proactive with Feedback

Regularly gathering feedback from your customers is a proactive way to identify issues before they escalate. By listening to your customers consistently, you can spot patterns or recurring problems and address them before they affect a larger group of people.

Conduct surveys and request reviews. This makes it easy for customers to provide input in a non-confrontational manner. Not only will this help you stay ahead of potential issues, but it also provides valuable insights into your products, services, or customer experience. Analyzing this data can reveal areas where your business can improve or refine its offerings, and help you stay competitive.

Customer feedback, especially negative feedback, is one of the most valuable resources for improving your business. By responding to complaints quickly and professionally, and by regularly gathering feedback, you can turn potentially damaging situations into opportunities to build stronger relationships with your customers. Addressing customer concerns with care can lead to better business operations, while improving customer loyalty and boosting your company’s reputation. 

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Having a player mindset when selling a business can be a real gamechanger. The goal with this approach is to steer clear from coming across as desperate or highly motivated to sell. Instead, a seller who embraces a player mindset operates from a position of strength. It’s all about realizing you have something of value and then realistically taking steps to move forward.

Keep Operations in Check

It is vital that you, as a seller, realize that your number one responsibility is to your business. You must keep normal hours of operation and activities should proceed as normal. This will ensure that everything at your business is operating at peak levels. Inventories must be maintained, team members must stay on board, and you should continue moving forward as though there is no sale on the horizon. After all, business deals fall apart every single day.

Stay Realistic 

Being a player doesn’t mean being unrealistic or greedy when it comes to pricing. While you, and your business broker or M&A advisor, will want the very best price for your business, it is essential that you remain realistic about the value of your business. Remember that like any asset, your business is not worth what you think it is worth. Instead, it is worth what someone is willing to pay for it. If you are like most business owners, you have a great deal of sweat equity built up in your business, and that means your emotions are likely involved. Having an impartial expert evaluate your business and reach a realistic price is in your best interests.

Maintain Confidentiality

A key part of achieving a successful sale is to maintain confidentiality. Experienced brokerage professionals always use confidentiality agreements because they work to protect their clients. One slip up in the realm of confidentiality can destroy a potentially great deal and even damage your business. Don’t work with any business broker that doesn’t utilize the powerful tool that is the confidentiality agreement.

Get the Upper Hand 

Being a player instead of a seller means that you act from a position of strength. Circumstances often dictate whether or not a seller is in a position to act from a position of strength. For this reason, you’ll want to sell when you are not forced to do so for personal or financial reasons. You’ll want to prepare your business for sale when you are not under any pressing stress to sell. Investing the time to clean up your balance sheet, address any environmental or leasing issues, assemble key documents, settle litigation and other key steps, should be done long before you wish to sell. In short, you want to be ready to sell whenever you feel like doing so.

Selling a business is a complicated process with many moving parts. Quite often, it is the structure of the deal that is more important than the price. Maintaining momentum is often the most important part of achieving a successful sale, for deals that drag on for an extended period of time are more likely to fall apart. 

As a player selling from a position of strength and not a seller who is in reactivity mode and must sell immediately, you set yourself up to be firm but also utilize flexible thinking. Being flexible and realizing when to bend can make all the difference between a deal happening and a deal falling apart. 

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Many businesses have a product or service that’s performing reasonably well, perhaps even thriving, but doesn’t quite align with the company’s core offerings. It’s often called an “orphaned” product—a good or service that is disconnected from the company’s main focus. If you find yourself in this situation, don’t panic. It’s more common than you might think. In fact, there are many buyers, from individual investors to private equity firms, actively seeking product lines that can complement or enhance their existing portfolios. Some may even be looking for a standalone product or service they can build an entire business around.

If you’re considering whether to divest your orphaned product or service, here are a few reasons why it might make sense for your company.

Improved Focus and Efficiency

One of the primary reasons to divest an orphaned product is the opportunity it provides to refocus your company’s efforts. An orphaned product, even if it’s successful, can distract your team and resources from the core business. Spreading attention too thin can hold back overall progress. By divesting, you free up time, energy, and capital to concentrate on what truly matters—your core products or services. This focus can lead to more effective innovation, better customer service, and faster growth.

Unlocking Capital for Core Business Growth

Another compelling reason to divest an orphaned product is the potential financial benefit. By selling or offloading the product line, you can generate cash that can be reinvested into your core business. This infusion of capital can help fund new initiatives, accelerate innovation, expand market reach, or even strengthen operational efficiency. In many cases, divesting an underperforming or non-core product is the fastest and most straightforward way to unlock funds that can drive meaningful growth.

Redirecting Resources to More Profitable Areas

Even if the orphaned product is profitable on its own, it may still be a drain on your company’s resources when you factor in management time, logistics, and operational costs. By divesting the orphaned product, you can redirect those resources toward more profitable areas of your business. In some cases, a seemingly profitable product might not be as strategic or scalable as other parts of your company. Divesting it could enable you to invest in higher-margin products or new markets that offer greater long-term potential.

Unlocking New Opportunities

Selling or divesting an orphaned product line can also open doors to new opportunities that were previously inaccessible. The capital, focus, and resources freed up by a divestment might allow your business to explore new product lines, enter new markets, or partner with other businesses in ways you couldn’t have before. This kind of strategic reallocation of resources can invigorate your company and create exciting avenues for future growth.

While divesting an orphaned product can provide significant benefits, it’s not without risks. Parting with a product line requires careful thought and planning. You will want to think about the impact on brand identity, customer relationships, and company culture. It’s important to weigh both the pros and cons before making such a decision.

Divesting can help refocus your company, unlock capital, and reallocate resources to areas with greater potential. However, it’s crucial to approach divestment strategically, with a clear understanding of the potential benefits and risks. In the end, a well-timed divestment can lead to growth and opportunity, but it’s essential to make the decision based on a thorough evaluation of your company’s goals.

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One of the worst mistakes any business owner can make is neglecting their business during the sales process. It is quite common for sellers to become overwhelmed, lose focus, and see their business suffer as a result. The last thing any business owner wants is for their business to encounter problems right before it is put up for sale. Fortunately, there are straightforward and effective steps that business owners can take to avoid this potential pitfall.

Maintaining Business Operations

Ensuring that your business is ready to be sold means making sure everything is in top condition before the business is placed on the market. In short, you don’t want to make any major changes to the way your business normally functions. Your hours of operation, inventory levels, and other key business factors should remain as stable as possible. To put it another way, everything should be “business as usual” until you have officially sold your business.

Maintaining a “business as usual” environment can, of course, be easier said than done. Juggling the operation of your business while finding and negotiating with a buyer can be remarkably difficult. Working with a business broker or M&A advisor is a savvy way to take the pressure of selling a business off your shoulders. This allows you to focus on what you do best—operating your business. If you are like most business owners, you’ve never sold a business before, and this means you’ll have a steep, and potentially painful, learning curve.

Handling Logistics 

A brokerage professional can assist you with every aspect of the sales process. From determining how much your business is worth and what the market will allow to maintaining confidentiality, a business broker or M&A advisor has the experience to properly prepare and position your business for sale. 

It is difficult to overstate the tremendous importance of maintaining confidentiality. Business brokers are experts in this area, ensuring that you don’t lose key employees, vendors, or clients during the process. Employees, management, vendors, and clients may become nervous and look for new options if they learn that your business is being sold.

Sharing Valuable Advice

Brokerage professionals can also help you make a range of key decisions in advance. For example, buyers will often pay more if the seller is willing to stay on after the sale to train them. Additionally, a deal may be more likely if a seller is willing to provide financing. Knowing in advance how you will handle these important issues is critical, and a business broker can guide you toward the optimal decisions.

Selling a business is a complicated process. It makes sense for business owners to take steps toward selling their business well in advance. The sooner you talk to a brokerage professional about what you need to do to sell your business, the better off you are likely to be.

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Entrepreneurs are typically dynamic and driven individuals who play a critical role in driving innovation. However, to succeed, they must leverage their strengths while being mindful of their weaknesses. By understanding both, entrepreneurs can maximize their potential and build more sustainable businesses.

Strengths of Entrepreneurs

Flexibility and Positive Attitudes

Entrepreneurs are highly resilient and maintain a positive outlook, even in challenging situations. These traits help them navigate market shifts, customer needs, and unforeseen obstacles with confidence.

Creativity and Willingness to Take Risks

Creativity is a hallmark of entrepreneurship. Entrepreneurs excel at generating new ideas and solutions. At the same time, they are comfortable taking calculated risks that can disrupt industries.

Goal-Focused and Committed to Success 

The most successful entrepreneurs are driven by clear goals. Their focus on success fuels both day-to-day operations and long-term strategies. Through this means, they stay on course even when faced with setbacks.

Strong Organizational Skills

Despite their busy schedules, many entrepreneurs possess excellent organizational abilities. They prioritize effectively and manage deadlines. All of this is necessary to ensure the business runs smoothly.

High Energy Levels

Entrepreneurs often demonstrate a great deal of energy. Their lifestyles often require long hours and maintaining enthusiasm. This level of energy not only drives their own work but can also inspire teams and stakeholders.

Weaknesses of Entrepreneurs

Impatience with Results

Entrepreneurs are ambitious about achieving their goals, but they often want quick results. This impatience can lead to frustration. Sometimes it can also lead to rash decisions that may undermine long-term success.

Distraction 

Juggling multiple responsibilities can lead to distractions and a lack of focus. Entrepreneurs may struggle to prioritize effectively, which can cause delays and impact the quality of work.

Distrust of New Technology

While entrepreneurs are generally innovative, some can be hesitant to embrace new technologies. This reluctance can limit their ability to leverage advancements that could benefit them in the long-run, improving efficiency and competitiveness.

Tendency to Stray from Plans

Entrepreneurs’ passion and creativity sometimes lead them to drift from their original business plans. While flexibility is important, straying too far from the vision can waste resources and cause a degree of chaos.

Difficulty Delegating

Many entrepreneurs are reluctant to delegate tasks, especially in the early stages of their businesses. This can lead to burnout and limit the growth of the business. Learning to trust and empower others is key to scaling effectively.

By embracing their core abilities, which often include such traits as creativity, focus, and energy, while recognizing addressing areas that might need improvement like impatience, distraction, and reluctance to delegate, entrepreneurs can take the first step towards improving operations. 

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Family businesses are quite common. Estimates suggest there are more than 5 million family businesses in the United States alone. While family businesses are prevalent, this does not diminish their unique nature, as a family business often plays a central role in the family’s identity. Family members are typically deeply attached to the business and its achievements. They may see their own futures intertwined with it. 

Owners of family businesses are generally very invested in their ventures and view them as part of their legacy. Consequently, sellers often hope to find buyers who will appreciate and continue their legacy. It is common for sellers to seek buyers who share their vision for the business.

Adding to the complexity, about one-third of family business owners never plan to retire. As a result, many family businesses lack a succession or exit plan, which can lead to instability and potentially jeopardize the business’s future. It is advisable for family business owners to work with business brokers to develop an exit strategy well before retirement.

Retirement will eventually become an unavoidable reality for nearly all business owners. Many are surprised to learn that the average lifespan of a family-owned business is just 24 years. Moreover, only about 40% of family-owned businesses are passed down to the next generation. Even more striking, only 13% of family-owned businesses make it to the third generation, and beyond that, the survival rate drops to a mere 3%.

There are also challenges associated with selling a business to a family member. One major disadvantage is that sellers often receive less value when doing so. Additionally, family-owned businesses may involve multiple family members in the decision-making process, which can complicate the sale. 

On the other hand, selling to a third party might result in family members losing their jobs or struggling with a new management structure. Overall, buying or selling a family business is a complex process that differs from other types of business transactions.

In conclusion, sellers will benefit greatly from seeking the advice and assistance of a brokerage professional. Business brokers and M&A advisors understand the intricacies of selling a family-owned business and can identify the right buyers. Finding the right buyer can significantly streamline the sales process and lead to better outcomes.

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When it comes to buying or selling a business, we often get asked two common questions: “How many businesses are for sale?” and “What percentage of businesses on the market actually sell?”

To get a sense of the market, it’s important to break things down by business category. The industries that make up the majority of small to mid-sized business sales include: manufacturing, wholesale trade, retail trade, business and personal services, and household/miscellaneous services. Together, these sectors represent a significant portion of the approximately 30 million businesses in the U.S.

It’s commonly estimated that around 15-20% of small businesses are for sale at any given time, though this figure can vary depending on market conditions. Interestingly, smaller businesses—especially those with fewer than four employees—make up a larger portion of the businesses on the market. However, it’s generally observed that the sale success rates for smaller businesses tend to be lower than for larger ones. Smaller businesses, especially those with fewer than five employees, are often seen as having more challenges, such as incomplete financial records or unrealistic pricing, which can affect their chances of a successful sale.

So why do smaller businesses struggle to sell at the same rate as larger ones? Several factors come into play. Smaller businesses often face challenges like inaccurate financial records or unrealistic pricing. Some owners may not be fully committed to selling or may not be prepared for the complexities of the sales process. In some cases, owners might simply close their doors rather than attempt to sell.

Another key reason small businesses often struggle to sell is that their owners may not be properly prepared for the sale process. Many business owners, especially those with fewer than five employees, fail to plan ahead for the sale. This lack of preparation can include everything from neglecting to update financial statements and resolve legal issues to failing to optimize the business for sale by streamlining operations. If a potential buyer sees these areas as red flags, they might walk away, even if the asking price is reasonable.

To improve the odds of a successful sale, business owners should take a few proactive steps. First, they should invest time in cleaning up their financial records, ensuring that they are transparent and up-to-date. It’s also wise to engage a professional who can provide expert advice, market insight, and help with valuation. Additionally, business owners should focus on making their business more attractive to potential buyers by demonstrating a stable, profitable operation with room for growth. Taking these steps can significantly improve a business’s chances of selling successfully.

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Determining an accurate valuation for a company is far from straightforward. It involves a range of complex, and often rapidly changing, factors. The challenge is compounded by the fact that some aspects of valuation are inherently subjective. This means that different professionals might ultimately arrive at different conclusions. Despite these challenges, we can establish ways to navigate the valuation process effectively.

One key factor to consider is the ownership structure of the company. A company that is partially or fully employee-owned, for instance, may be perceived as less marketable. Many owners may not realize that Employee Stock Ownership Plans (ESOPs) can significantly impact the overall value of a company, however, this is true as well. 

Intellectual property (IP) is another crucial element that comes into play with a valuation. Assessing the value of patents, trademarks, and copyrights can be challenging but is essential for an accurate valuation. The value of these intangible assets plays a significant role in the overall assessment of a company’s worth.

Technological advancements can also influence a company’s valuation. Companies, especially those focused on technology, may face obsolescence due to rapid technological changes. Even businesses outside the tech sector can be affected by technological disruptions. If a business is approaching the end of its life cycle, its valuation is likely to reflect that reality. Additionally, vulnerabilities to supply chain disruptions can negatively impact a company’s valuation.

The diversity and range of products and services offered by a company are important valuation factors as well. A company with a single product or service may be harder to value than one with a diverse product portfolio. Generally, companies with greater product diversity are valued higher. Similarly, companies with a broader customer base are often valued more favorably compared to those reliant on a few key customers.

In summary, accurately valuing a company requires a balance of art and science. It involves both intuitive judgment and analytical rigor. Collaborating with a skilled business broker or M&A advisors can help navigate the complexities of valuation and ensure a thorough and accurate assessment.

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