Selling or transitioning a family business can be a daunting task – especially for those individuals trying to lead the process on behalf of their family. The challenges can result from the multiple owners and stake-holders of the business, the family dynamics that run through all conversations, and the greater or lesser psychological connection certain family members may have with the business. These challenges are always going to manifest themselves uniquely in a particular transaction, but there are a few universal guidelines for when you are looking to navigate their family through the process.
1) Early Involvement
. Whenever there is group ownership, one stray opinion can shake up a transaction. When family dynamics are involved, the risk is even greater. That is why it is important to bring everyone to the table in the early stages of discussion and negotiation and to make sure everyone is comfortable with whatever form of term sheet or letter of intent the parties are agreeing to. The sooner everyone is on the same team, the easier it will be to guide the process.
2) Set appropriate expectations
. If you find yourself in the position of leading negotiations on behalf of your family in the transition of your family business, you will quickly find the process is longer, more challenging and more unpredictable than you might otherwise have hoped. These mistaken expectations should not be surprising – you and your family have spent your lives building your thriving business, not buying and selling companies. But trust your advisors when they warn you from the outset about the time and expense of such a transaction and make sure all the participating family members are likewise warned from the beginning. Frustration about the process may be inevitable, but it should not reduce the family’s resolve on the final goal.
3) Keep everyone informed
. While it is rarely effective to negotiate a transition or sale process with every single family member sitting at the table, it is essential to keep all stake-holding family members informed of the developments in the transaction. Things can change drastically from term sheet to closing and certain family members may have concerns with the changes that are necessary to get the transaction consummated. It is always better to have those conversations in real time. The last thing a successful process needs is a family fight in the eleventh hour when all the work has been done and all the expense has already been incurred.
4) Understand where the greatest tensions are
. There will frequently be one or more family members who grudgingly go along with a plan to sell, but only because they have been “outvoted”. These individuals are very important to the process because they are the most likely to retain the original vision of the transaction even through all the distractions. Unfortunately, they are also the least likely to be flexible in adapting to the realities of the sale process. Therefore, it pays to be particularly sensitive to their reluctance and position from the beginning. Structuring the transaction and communicating the good and bad news over the course of the process with their sensitivities in mind will help keep them in the process, rather than outside of it.
5) Remember the reasons you started the process
. Do not be afraid to regularly remind the entire family of the reasons you chose to begin the process. This is not to say that things do not change – developments during the process may make the transition a bad idea. But it is easy for a family group to either lose track of the process or, alternatively, to become obsessed with minutia in the deal terms. In either case, the group can lose focus on the goal. Remember, you decided to sell your family business after a great deal of thought and consideration because it was in the best interests of the family. Don’t let the lawyers, brokers, accountants, buyers or anyone else in the process let you lose focus on fulfilling those best interests.