Whoa! Did we just say SELL your family business? The business that you have put your heart and soul into? The business that has brought your family together for a common cause? The business that has become part of your identity? That’s shocking!
Yes, it is. But at some point it may be wiser to exit your business than to hang on to an old dream. It will be one of the toughest decisions of your life but here are 10 signs that the writing is on the wall in terms of the future of your long-time company that you are emotionally invested in.
So let’s take each of these signs one by one and explore them in a bit more depth.
A major capital investment is suddenly needed
Isn’t this the time when you should be diversifying your assets, not concentrating them? Consider your payback terms. Will they extend beyond your retirement date? Be honest, do you have the same energy and devotion to your business now as when you first started it? You will need that to defend your investment. Could it be a good time to bring in an equity partner with smart money, or possibly an industry buyer who has the management capacity, infrastructure, or distribution network needed to protect that investment? Maybe you might want to sell now and also secure a three-year employment contract for yourself, other family members and staff. In short, rather let the new owner defend the required capital investment whilst you carry on earning and are freed up to plan your next venture.
A big competitor is taking money away from you with great alacrity
Time to wake up and smell the coffee! When this happens, the writing is on the wall. We know it’s tough, but be objective. Unless you radically change your offering or come up with something completely unique, it’s unlikely you are going to win against a competitive Goliath.
A smaller and nimbler entrepreneur is outmanoeuvering you
This is a common issue but the biggest danger is that your customer base defects. Which means you need to rewrite, acquire or sell. If you decide to do the latter, do it now before you lose too many clients.
A major company has just acquired your direct competitor
Be warned – this company wants to grow its market share. Which means it will be coming after your clients! Sure, as a defensive measure some of their competitors might well be compelled to make a similar acquisition. But, what are your options? We recommend that you stay ahead of the game by getting acquired whilst the market is hot. It’s a good time to sell as you will be able to command a decent price.
You’re not as passionate and competitive as you once were
The candle can’t burn bright forever. If you’re not still growing, then you are probably contracting. When you were on your game, the competition was tough. Now it’s even tougher. Is it worth risking your family’s net worth if you no longer have the same passion or commitment as before? Maybe not.
Your children have dreams of their own, that don’t include the family business
You originally planned to hand your company over to your children. Commendable though this is, chances are they have other plans or they are just not good at running this kind of business. In which case, consider converting your company into a diversified portfolio of financial assets. This would ensure them a great legacy, and would be far less risky than turning your company over to your children should they be disinterested or inexperienced managers.
Put your health first
You’ve had a health scare. We’re really sorry to hear about that but see it as a great opportunity for you to change pace and direction and to, perhaps literally, listen to your heart. You made a lot of sacrifices to build your company to where it is now. Don’t let your health be the final sacrifice. Rather, start ticking off your bucket list. Turn your attention to family and friends. Go on that journey that you always dreamt of but never had the time to. Spend your days fly fishing or perfecting your golf swing. Welcome new experiences, maybe just focus on a philanthropic side of your business and handle that independently. Do what you love and let go of what is no longer good for you.
You’ve lost a major client or a key employee has resigned. What do you do?
Whether you saw it coming or not, that’s a significant blow to the business! Whilst we admire your optimism that the lost business and/or staff member will soon be replaced, additional time and expenses will still have to be incurred. What exactly will it take for it to match the new sales level? What will you lose in the process? Rather than have to make cuts or incur more expenses that may or may not be recouped, perhaps it is time to find a buyer that could replace that business. You will need to act fast, before your company loses more value and your profits erode.
Time for asset diversification and a graceful exit
Want to exit on your own terms, from a position of strength, exactly as you had originally planned? Of course you do! You’re aware of the competitive forces in the market. You know the relative strengths and weaknesses in valuation multiples. You’ve worked hard to make your business attractive to any strategically savvy potential buyer. So what if you were only thinking of retiring in a few years’ time? If there’s a consolidation happening in your industry now and valuations are up, then sell while you’re at the top and sign an employment or consulting contract that’s equivalent to the three or four years you were expecting to work before retiring. Then it’s win-win for everyone. Hire a good M&A advisory firm to represent you, get a little competitive bidding going between the most likely buyers, and clinch the best deal.
Ah, you’ve just made a great sale and secured your future. Now it’s time to go and enjoy life. You’ve worked hard for this moment now your next wonderful journey is about to begin.
Sourced from KPMG Family Business Blog UK