An 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.
From 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.
Still, "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."
That catalyst is usually need. Any of the following could spark consideration of a sale:
The 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.
The 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.
There's 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.
Family members don't get along and are pulling the business (and the family) apart.
These can all be excellent reasons to sell--and many advisors urge their clients to consider selling when a tempting offer is tendered.
Its Just Emotion
Some 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."
Concern 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.
"But 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," says Sherman.
So 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.
Other emotional factors influence why business owners say no to lucrative offers:
Keeping 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.)
They can pass on to future generations the same opportunities and choices their relatives provided them.
They won't be betraying their ancestors' dreams for the family or the business.
To ensure that the sale of the business is not decided solely on economic terms, think about the emotional aspects before an offer is made.
Keep 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," says Petty.
Ask 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.
Andersen Center for Family Business, 711 Louisiana, #1300, Houston, TX 77002, (713) 237-2724;
Berland's House of Tools Inc., (800) 339-0026, (http://www.thetoolman.com).
Patricia 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).
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