To Sell or Not to Sell: The Great Inevitable Debate for the Family-Owned Business

After years of hard work (possibly decades), your client has built a successful family-owned business. Now that your client is older, he/she is ready to sell the business and use the proceeds for their retirement. But you know that your client may be in for a bad surprise- there are more small businesses than there are buyers and even if a prospective buyer is found, that doesn’t mean that the seller will agree with the price offered. For these reasons, you have to be ready to help your clients sell the business and do so quickly, but also at the right price. Speed increases value and leverage, while the unknown can kill a sale. Thus, you must counsel your client on two absolute essentials: planning and preparation.


So often, sellers fail to perform due diligence to an extent at least equal to that of the buyers (ideally, however, the seller will perform even greater due diligence). Due diligence for a seller will help the seller discover and document all assets and liabilities, as well as any details that may affect the business and the business’ value. The importance of this is that by having your client, the seller, perform his/her due diligence prior to offering the business for sale, your client is then capable of fixing any issue that may effect the sale and/or maximize the true expected value from the sale. In addition, this allows the client to prepare himself with selling points for future negotiations. Truly, forewarned is forearmed. When it comes to due diligence, independence and objectivity is worth the premium that it charges. For these reasons, it is vital to pay an independent and experienced third party to perform the due diligence required. And paying the third party is worth more than the due diligence itself as by having the third party perform the due diligence your client remains free to run and operate the family-owned business- something that surely he/she is much more aptly suited for. Once the due diligence is performed, a sales price can be determined.


Helping your client prepare for the sale of the family-owned business can typically be broken down into a five part process: (1) define the sale, (2) gather information, (3) tax planning, (4) identify the right buyer(s), and (5) create a thorough presentation. When defining the sale, the client has to be careful about which part or parts are being sold and what to do about intellectual property (sell or lease). Address these issues early and clearly and the likelihood of an unforeseen dramatic change in sale price will drastically decrease. Your client must gather all information that a potential buyer could and would request. The information that your client can expect to provide should include financial statements and income, sales and employment tax documentation for the last five years. All records must be clear to the recipient, accurate, and easily explainable by the seller. In addition, audited financial reports and third party appraisals are worth their weight in gold and will enhance the seller’s position. It is essential that book records and tax returns do not conflict- or, that any difference can be reasonably explained. Once the sale is defined and the pertinent information gathered, tax planning must occur. Unfortunately, this is one area we often see overlooked. The tax consequences of a properly structured sale, as compared to an improperly advised sale, can be quite large. Always make sure that your client consults a competent tax advisor. When your client understands truly what he/she wants to sell, has all relevant information gathered and knows the tax consequences of their desired actions, then he/she needs to identify the right buyer and prepare a presentation. Does your client want to see the business carried on by likeminded business owners? Does the right buyer need to have ample cash now or will an installment agreement suffice? Does the buyer have proper credit? Is the buyer working on the same timeline as the seller? These are all essential considerations. But if the buyer is the right buyer, then a presentation is in order. To a certain extent, all jobs are sales jobs. And your buyer needs to know that when you sell a business, there is a salesmanship to the sale.

Points for the Weary – Don’t Let These Kill Your Deal

  1. Breached confidentiality.
  2. Your client as seller must not stop running the business, nor decrease the profitability via distraction.
  3. Only present pertinent and credible information. Stay focused!
  4. Due diligence is non-negotiable!
  5. Be reasonable in the price offered.
  6. Communicate with the buyer frequently and clearly.
  7. Analyze and understand the competition.
  8. Investigate the buyer.
  9. Be competently represented.

Contact Carolina Tax Trusts & Estates for more information.

Categories: Business Planning