The perfect timing for selling your family business was yesterday
Family business owners have a difficult enough time letting go of leadership, let alone selling their business. It’s even more complicated when the owner is also the founder.
Our family was interested in acquiring another family business. The business was in a similar industry and was even located in our same town. We knew the owner well and had a good relationship that made it comfortable to approach him about buying his business.
The owner was approaching retirement and had no children in the wings who were interested in joining the business. His exit strategy was to sell the business.
Missed It By That Much …
The business we were interested in acquiring reached a peak performance and value just before the recession, but had steadily declined in recent years. We first approached him as this decline was setting in. Not at the peak, but just as it was beginning to decline. I think he felt put off by our first offer. His perceived value was pegged at the peak performance year, feeling that one day the business would eventually return back and even surpass this high point. Like the stock market most owners try to get out at the top. But few rarely do.
We made subsequent offers almost as an annual ritual. Each year after the recession the performance of the business declined along with our offers. At each offer refusal he remained steadfast in his thinking that the business would recover and return back to its heyday. It never did.
Eventually our offers stopped and several years later he sold at a fire sale price to another buyer.
Separating the Emotion From the Financial
Owners and especially founders of family businesses have difficulty letting go, because there is the personal aspect of the business transaction that comes into play. For many it’s not just a job, but a lifestyle
Family business owners have the added concern of:
- Employed family members job security
- The owner’s perceived value is often unrealistically high, because they often haven’t performed a third party valuation
- Like selling a house, there’s a nostalgia component in the equation. (Home sellers remember growing up in the house and it becomes more personal)
- Sellers remember the high watermark for their business, the highest sales and profit level
- Sellers often hold out waiting to get back to that more prosperous level despite changing market conditions
Sometimes the family business is ready to let go before the founder.