There are many complicating factors when it comes to selling a family-owned business. Here is a true story about a popular family business built from the ground up, only to later meet a very sad ending. There are countless similar situations. This is only one story.
There was a family-owned pizza dough company that had millions in sales. They sold their pizza dough to a range of businesses. The founder split the business equally among his five children. Complicating matters was the fact that the children didn’t want to work in the family business. They turned the operation of the business over to two members of the third generation.
When the founder’s children reached retirement age, they decided to sell the business. They hired a business broker. The business broker searched for an appropriate buyer. After considerable effort, the business broker found a buyer. The buyer offered to buy the pizza dough business for 50% of the sales, which was a good price. The business broker took the offer to the five owners. This is when the problems began.
The business broker was cut out of the loop when a huge family argument started. They turned the offer down. There was no counter-proposal. No attempt to negotiate price, terms, conditions or anything else. The offer was finished and done. The business broker had lost several months of hard work.
Later, the business broker learned that two of the third-generation members who had been operating the business didn’t want to sell. They feared losing their jobs. More than two decades later, the business has experienced almost no growth and is just breaking even. Now in their 70’s, the owners will likely never receive anything for their equity.
This is a true story, although we changed the specific business type. This story serves to outline the problems that can develop when it comes time to sell a family-owned business. The five children lost a considerable amount of money by passing on this deal. This would have been money that could have made their retirement much more pleasant.
What is the lesson learned from this story? Family-owned businesses need to have agreements in place. There should be strict guidelines concerning issues such as salaries, benefits, and what happens when one member wants to cash out. Resolve these issues years in advance, with the help of a business broker. Contact EBIT Associates. We can help guide you in the right direction.