Family business by Nick Youngson CC BY-SA 3.0 Pix4free
Here at Apex, we are all about long-term strategic planning that involves all stakeholders, but also includes a Plan B (or C and D as it might be). This particular success story had all of the above.
The Parents
This company had been in business for many years and had run out of a home office the entire time. It was a husband and wife team, and they were working 15 hours a day each. They had two children, one who worked in the business and one who did not, and they didn’t want there to be any accusations years later of “unfairness” if they were to simply give the business to their son (the one who was active in the business).
When they first spoke with us, they noted that they wanted to sell it to their son, just like any other transaction, but if that proved to be impossible, they wanted a Plan B in the form of going to market to someone outside the family.
The Son
The son was 34 at the time of the sale, one of the younger buyers we’ve seen at this price point, but he was serious about taking the business over. The challenge was twofold: he primarily worked in sales (and was lucratively compensated) but did not have elevated knowledge about operations or management.
He would also have to find a way to take an income that would accord with an SBA loan. He could no longer be the high-flying salesman (he would have to leave that department) and instead was going to be the owner with a monthly note to pay.
Meeting of the Minds
The company had doubled in value since we first met the couple and advised them on what they could do to drive value. As we got closer to a potential sale, we actually had a meeting which had the parents, the son and his wife, an attorney, an accountant, a fiduciary, and an Apex advisor. This is a dream scenario for us because we aren’t trying to settle something last-minute, but are actually planning ahead for something that is in the near future, but isn’t imminent.
Closing
We took the son through the buying process like any other buyer. He had to sign an NDA, then produce financial statements, and then he made an offer to purchase. It was slightly below what the parents were asking, but there was no pushback, and the deal closed.
The son also managed to ingratiate himself with one of our SBA Preferred Lenders, who quipped, “I love that buyer” when we were catching up over deals in progress. It shows he was serious and wasn’t taking the sale for granted just because his parents were involved.
But as we were moving through this stage, we also realized that the Plan B we had discussed way back when we had first met with the sellers had a huge question mark over it: what if the son didn’t want to work for the new owner? With one of the top performers leaving, would the value of the business go down? What would be the mindset of the sellers if such a departure were to happen? It underlined that what sounded like a good theory at the outset became impracticable as we pursued Plan A.
FAQ
Three questions this article might prompt:
- Do families often do internal sales? Often is not the word we would use, but we do see it. Generational family-owned businesses are themselves a smaller subset of the businesses that go to market, and of those that do, they are often going to market because there’s not an internal option.
- If I want to sell to a family member, how far out should I be planning? The couple in this scenario first made contact with us in 2019, and we sold the business in 2023. A bare minimum we would like to see would be three years to make sure that we are putting the right processes in place to get a great outcome.
- What happened to those 15 hours a day that both parents were working? They hired project managers and hired a marketing company to take their combined hours down to what an incoming owner could bear (nobody has 30 hours a day, literally!).
Are you interested in buying or selling a family business and want some help connecting the dots? Reach out to us today.