Accounting Counts: Exit Strategies For Family Businesses

Selling The Family Business

ByAlison Piccolo, CPA, CA

Sunset Distribution Enterprises was founded in the 1970s by John (fictional scenario), who continues to act as President of the company, most often from his condo in Florida.

The company has grown significantly over the past 35 years, particularly through the late ‘90s. His son and daughter are both active in the business, as one of the sales managers and the general manager.

The Canadian industry has experienced increased U.S. competition as large public company competitors take a more aggressive approach to the market.

Neither Mike nor Meghan are really interested in increasing their managerial duties, in fact there is some concern that both are looking to make a lifestyle change. John initially ignored his children’s plans however, and it is now time to make some decisions, and he is considering selling the company.

As business advisors this is the scenario we are faced with all too often.

After many years of hard work and most likely plenty of sacrifices, many family business owners look to reap the rewards of their efforts over the years.

Sometimes, exit strategies or exit planning, rather than succession planning, is needed as there isn’t a next generation of family members who are ready, willing or able to continue the family business.

Business owners need to consider the dynamics within the family company in relation to the roles of family, ownership and management, and how the three intersect.

These dynamics must be balanced against the family business goals, which should include: family harmony and long term financial prosperity, when considering a selling transaction.

As you contemplate this major life change and consider your options to exit the family business, you need to understand what drives value in business in today’s market and what potential buyers and investors are looking for.

Value will be impacted by controllable, typically internal, items and external market factors.

Controllable factors of consequence can generally be summarized as “getting your house in order” from a financial, operational, tax and legal perspective. Nowadays, both strategic and financial buyers have increased the level and complexity of due diligence they are completing in getting deals done. Make sure you are ready.

External market dynamics will also have a significant effect on value and the ability to consummate a transaction. We would advise family business owners to continually assess their position in the market place, their plans, and their readiness for future activities, which may include an ownership transition. Selling to the right person is equally important and plays a vital role in securing the legacy of your brand.

You’ve undoubtedly worked hard to establish the name and identity of the business, and have done everything in your power to create longevity for the company. Selling to someone who’s passionate about your business and brand will make a difference, and should also leave you feeling better about the decision. Selling a family business is not a spur-of-the-moment decision, and requires significant planning and thought.

Taking your time to make key choices and to adequately prepare your exit strategy is critical to a successful sale.

In addition, understanding your role as owner of the family-run business and how you can add and subtract value, is an important part of the overall process.

For many, the sale of a private company is the culmination of a lifetime’s work. Often, this will be a once-in-a-lifetime transaction — with just one opportunity to get it right. Fully preparing the business for your exit is not a small task — it’s a stressful and risky undertaking, with tax implications as well — and many family business owners benefit from professional advice.

Alison Piccolo is a Chartered Professional Accountant and works for KPMG in Windsor (KPMG.ca). Alison has 15 years of experience in public accounting and currently leads the local Owner Managed Enterprise practice. She works directly as a trusted business advisor to privately held companies, assisting with audit, accounting and tax matters.