6 Key Steps to a Successful Family Business Sale

As with most things in life, thoughtful preparation usually reaps the most benefits when it comes to selling a family business.

Owners can be so focused on running their business that they think if they get a good offer, the rest will take care of itself. Getting the right price, however, is just a small component of selling a family business. Capital sufficiency planning, estate planning and tax planning all are critical to a successful sale. So is considering the situations of all family members post-sale.

If that sounds daunting, remember that you won’t be doing all that planning alone – at least you shouldn’t. The key is to not allow yourself to become paralyzed by indecision, putting off essential preparation in the same way that many people neglect retirement planning.

As a blueprint for the process, here are key guidelines to remember in selling your business:

1. Start planning at least two years in advance.

Don’t make the sale of your business a last-minute fire drill.

That is often how it plays out, unfortunately. Most preparations and planning steps can be done well in advance.  But all too often it all comes together in a rush at the end.

The business sales that work best are those that have had a planning structure in place for years beforehand. Everyone involved should know what will happen, approximately when it will happen, and is accustomed to the ownership and governance structure rather than needing radical changes to be made at the 11th hour. When you know the endgame, you can start managing the business for the sale in the couple of years leading up to it. Having an organized, structured process also should help you avoid one of the problems I see – the all-too-frequent tendency of preoccupied business owners losing focus on their firms’ day-to-day operations during the sales process.

You can maximize the business’ value, and make the process go a whole lot more smoothly, when you get your legal, income and estate tax factors together in advance.

2. Assemble a team of experts.

Keeping the process as streamlined as possible is a good goal, but not at the expense of optimal planning. That is why you need not a single adviser but a team.  Your team will consist of business advisers who will focus on the business aspects of the sale and family advisers who will focus on the impact of the sale on the family.

Your business advisers may include business accountants, investment bankers, merger and acquisition attorneys and others who will help with the preparation for and actual sale of the business. Your family advisers may include an estate planning attorney, an accountant to deal with income tax matters and a wealth adviser to help the individual family members understand the ramifications of the transaction and expectations for what the future might look like.

If there is conflict in the family, you may also want to employ a family counselor to make sure there is clarity and agreement prior to an event. It’s not uncommon to have conflicts occur; you want to avoid them if possible.

3. Consider the whole family.

A closely held business is an extension of the family’s checkbook. Family members are used to tapping it for cash flow to meet personal needs. Going from being able to do that to having a finite amount of assets to live off can be challenging.

With that in mind, a high priority must be put on capital sufficiency planning for all family members involved in or affected by the business. This analysis will determine what kind of sale price is required to meet everyone’s long-term needs.

Taking everyone’s interests into consideration may seem obvious. But one or two individuals tend to drive the sales process in most families, and their wishes are not necessarily in the interests of all members. Once the business is sold, it will be too late to go back and fix issues involving everyone else.

Just as important as finding out what everyone needs is making sure they have the capability to manage and live off a lump sum of money received from a sale and make it last for a lifetime. Family members may be smart but have little experience in managing money and long-range personal budgeting. When that money is gone, they’re not getting it back.

4. Don’t overlook non-financial aspects.

It’s not all about the money – you have to take more than financial considerations into account. What do the other family members want to do after a sale, especially those who will be out of employment? Do they really want to be out of the business? Are they ready to retire?

I don’t think many business owners think of the future impact on the whole family and what happens in Year 3 or 4 after a sale. Fixation on price becomes a driving factor as a transaction nears, with other things taking a backseat. Making sure you understand everyone’s needs and desires is really important.

5. Take advantage of estate, tax and other planning opportunities.

Once you figure out what you need from the business and what it is likely to fetch, some strategic estate planning may enable you to transfer ownership in advance of a sale and minimize the family’s future estate tax liability. These strategies are ideally completed well in advance of a sale, which is why multi-year planning is so important.

You also want to focus on the key drivers of your business’ value so you can perhaps manage it differently with a forthcoming sale in mind. You want to obviously involve your team of experts closely in this process.

Taxes will have a big impact on the outcome. This is where tax advisers can help, advising how to structure the sale. You may be able to spread your tax liability over time if you wish, with added risk. You may want to retain a financial stake in the business. For example, you could elect to receive 80% of the value at the transaction plus another 20% earnout to keep some skin in the game and benefit from continued business growth and/or cost-saving synergies.

You may be able to take advantage of recent tax law changes. Most recently, the 2017 Tax Cuts and Jobs Act created opportunities for family businesses to qualify for a reduced income tax rate by restructuring into C corporations. Such a move could increase after-tax income to the family and potential buyers.

Think about the sale of the business and its real estate separately. The real estate has unique value to the business, so make sure you are properly compensated for the business operations and real estate. You may also consider keeping the real estate with a long-term lease to the business buyer. This creates ongoing cash flow for the family and keeps the option to sell it at a future point.

6. Make plans for the post-sale future.

Family businesses tend to be the binding agent that keeps some families together. If this is the case with yours, explore whether there is interest in establishing another vehicle they can work on together – a foundation or philanthropic entity, perhaps a donor-advised fund. The sale will create a big one-time tax event. If you’re going to create a family charitable vehicle, it likely makes sense to do it the year of the sale so you can offset some of the significant tax liability it will create.

Sometimes, too, a family business masks conflict among family members. A sale may bring these issues to the forefront, creating problems over perceptions of inequality. Be sure to address such matters ahead of time – with a family counselor if necessary.

If you intend to stay on with the business post-transaction, make sure you get a solid employment contract at a fair market value. And mentally prepare yourself for the idea that you will no longer be the ultimate decision-maker. Make sure you can be successful and operate in that environment. Otherwise, simply walk away.


The material shown is for informational purposes only and should not be construed as accounting, legal, or tax advice.  Altair Advisers LLC is a registered investment adviser with the Securities and Exchange Commission; registration does not imply a certain level of skill or training.  While efforts are made to ensure information contained herein is accurate, Altair Advisers cannot guarantee the accuracy of all such information presented.