What You Need to Know Before You Consider Selling a Family Business
As baby boomer business owners approach retirement, many are facing the sobering fact that their children don’t want to run the “family business”.
Thousands of businesses will be put up for sale in the next decade, and it will be a real struggle to make your business stand out from the crowd.
RMIT University’s MGI Australian Family & Private Business Survey 2010 surveyed 5,000 businesses across Australia and found that 45% of family business owners are actively planning the future sale of their business.
This will create a buyer’s market and make it difficult for owners to get the price they’d like.
Another problem the survey identified was that 44% of businesses were not sale ready. This will make it even harder to gain the desired sale price.
In our work with family businesses facing these issues, Vantage Performance believes the key challenges for owners considering selling include:
- An oversupply of SME businesses, which will significantly depress sale prices and leave owners with less super than planned.
- By the time a family accepts that the kids aren’t taking over, and decide to sell, the business will be in worse shape and the parents will have stopped reinvesting in the business during the 2-3 year period leading up to a sale. This will make it harder to sell and they will get less for it.
- Owners don’t have the energy to put back into the business – if they can’t achieve a sale the business starts to underperform and many will simply collapse. Insolvencies will rise and personal bankruptcies among parents – and heirs – are a real possibility.
- Owners who do lose their business are losing everything at the end of their working life with no ability to recover.
These are sobering thoughts, but the good news is that decisive action can lead to a more positive outcome.
Owners need to sort out today if the kids are taking over or not – they can’t delay.
Have a clear and early conversation about transition: if the kids want to follow their own career paths, then formulate an alternative exit plan and implement a strategy to get the business “sale ready”.
My next blog post will look at 5 key actions you can take to make your business stand out in a crowded sales market.
In the meantime, take a look at our case study on selling a family business and see what might apply to your own situation:
Selling a family business
Vantage Performance was asked to work with a fast growing plant hire business with sites in Adelaide, Sydney and North Queensland. The business, in the midst of Queensland’s mining boom and with very loyal staff, had received an indicative offer from a third party to purchase its assets for $10 million.
The business had expanded too quickly using debt, and the GFC had caused immediate revenue decline.
The directors were stressed, relationships had become strained and their personal properties were on the line. No planning or exit strategy was in place.
Under-utilised but highly leveraged equipment gave rise to cash flow variability. Management reporting was poorly understood and not utilized. In addition, one of the interstate branches was incurring monthly trading losses and draining cash from the business.
Key initiatives to improve business performance
Vantage Performance assessed strategic options and developed a profit improvement plan that included a robust stakeholder management strategy to regain support.
We helped the client to reduce debt, strengthen the internal control environment (rolling 13 week cash flow, 3 way forecast, KPI reporting, robust management accounts), and to close the non-performing interstate branch, relocate equipment and refocus the business around North Queensland where it was undergoing significant growth.
Once the business performance improvement plan started to get “rubber on the road”, the client was fielding indicative offers from key competitors and investors.
Revenue increased by 60% in a 15 month period and EBITDA increased from $189,000 to $391,000 per month.
This family business secured an offer for the business of $11 million, $1million higher than the original offer.
Vantage Performance is a national performance improvement and turnaround firm – Winner of the 2011, 2010, 2009 and 2008 Turnaround Management Association – Turnaround of the Year Awards.
* This 2-part blog series was adapted from an article by Dom Del Borrello first published in the September 2011 edition of Family Business Magazine.