Selling To Family or Key Manager
Selling to your son or daughter (or key employee(s), as the case may be) can be a natural progression for your business, especially if you’re approaching retirement, and you’re ready to take a step back from the day to day involvement. But even if you’re keeping it in the family, selling your business can still be a daunting task, and understandably you may not know where to begin. So we’ll try to answer the most common questions that our clients have found themselves asking.
Q: Do I need to bring in the help of a broker/advisor if I already know who my buyer is?
A: Mergers & Acquisitions Advisors bring a lot more to the table than simply marketing your business. If you’ve already got your successor lined up and don’t need to find a buyer, that’s great! But there are still a lot of ways an advisor can help.
Mediation. Business owners – and buyers, for that matter – don’t always anticipate what an emotional process a sale can be. If you’ve started this business from the ground up, or even if you acquired it from a previous owner or founder, it’s been a significant part of your life for a long time -much like a spouse or a child. It’s not uncommon for a seller to go through something similar to the stages of grief when separating from their business.
And if you’re selling to your son or daughter, things can get even more complex. In a way, it can feel like you’re selling your baby, to, well, your other baby. And with that can come significant anxiety about the collective stress and future success of everyone involved!
At the same time, your child or key employee can have their own various stages of stress, as they learn to adapt to the lifestyle changes and responsibilities associated with being a business owner. So while we’re not promising that we’re going to provide you comprehensive grief counseling, you may find it helpful to have an objective third party that’s able to help you navigate hard conversations about valuation, deal structure, financing, and transition timelines, and help you know what questions to ask and what variables to plan for.
M&A Tools. When a business owner decides to sell their business, they’re often surprised to find out just how much they don’t know about the M&A process. And why would you? You know your own industry in and out, but mergers & acquisitions is an entirely different industry. That’s where Calder Capital comes in. Our team can provide you a comprehensive valuation of your Company, taking into account your revenue, expenses, taxes, everything – and get you an accurate range of what your business is worth. Beyond a valuation, because we are familiar with how deals are structured, we can help you to creatively structure a transaction that works for both you and your family member/manager.
We can also help your successor with a Letter of Intent, and with getting other intentions and specifications for your Company in writing. A lot of this may seem unnecessary if you’re selling to someone you’ve handpicked. However, transactions with a family member or close friend can be even more challenging than with an unfamiliar buyer, especially when the emotions mentioned above get thrown into the mix. Having proper documentation and doing things by the proverbial books can be a life saver, especially when emotions run high.
Due Diligence. There are a lot of loose ends to tie up when a company is transferred to a new owner. You may have licenses that need to be transitioned over, or in some cases, you may need to formally terminate your employees so that the new owner can rehire them, for tax and other financial purposes. Additionally, if lenders are involved, they will require reams of paperwork, appraisals, etc. We can make sure all of the right gears are moving.
FAQ: What if my successor doesn’t have the money to purchase the business?
Many buyers, especially if they’re coming into ownership of a family business or of their own employing company, don’t have the capital in their back pocket to acquire a business outright. This often leaves owners in a predicament where they think, “well, my business is worth $2MM, my daughter doesn’t have $2MM, so I’ll have to finance the entire transaction!” Understandably, this can cause a large pit to form in the owner’s stomach! Fortunately, the buyer often has to have only a fraction of the necessary capital to get the transaction done at a level where there is very little if any seller financing.
This is an area in which we can definitely help. If you’re on the brink of retirement, do you really want to wait to take installment payments for a decade? Will you really feel the weight of the business lifted off of you if you are waiting 10 years to get paid? But it doesn’t change the fact that your kids don’t have the money to buy your Company outright. So where does that leave you?
Leave it to us. Calder works with a trusted group of the most qualified small business lenders ready to finance your successor for you. Additionally, we know how to package business opportunities in the way that lenders want to see. This way, you still get your retirement nest egg up front, and your successor can affordably acquire your business.
Q: What are your fees for helping me sell my business to a family member or employee?
A: Generally, we would like to understand the company and the situation before presenting a fee proposal, however, our engagements in this respect have two parts: 1) there is a monthly consulting retainer; and 2) there is a fixed success fee based on the transaction happening. The monthly consulting fee is credited against the final fixed success fee so that the net total is the amount of the fixed success fee.
Consider that an attorney and CPA could also advise on many elements of completing a transaction suffice to say that neither profession spends a significant time devoted to business valuation, deal structuring, or obtaining commercial financing. Additionally, attorneys and CPAs will charge significant hourly fees regardless of whether the transaction gets to the finish line. We absolutely recommend using an attorney for the final transaction documents and a CPA for assistance with tax planning and preparation related to any transaction.
Contact us if you have any questions about selling to your children or employees.