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.