InTents August/September 2021 - 42

business | management
Succession strategies
Determining the true value of your company.
by Larry Oxenham
S
Not all in the family
According to a PricewaterhouseCoopers
2016 survey of family businesses, just
half of the family fi rms surveyed said
that successors to key roles will be
family members. Of those expecting
to change ownership in the next
fi ve years, only 52% of them plan
to keep the ventures in the family,
down from 74% in its 2014 survey
and the lowest number since 2010.
Of the family businesses expecting
to change ownership more than fi ve
years in the future, just 69% plan to
keep the companies in the family,
compared with 79% in the 2014 survey.
uccession planning can be a tricky
matter, especially if you're passing
your business on to a family member.
Sometimes keeping it in the family is
viable, but not in every case. If it comes
time to sell the business instead, you
should be armed with some strategies
for getting what it's really worth.
All in the family?
First, some perspective: According to
the U.S. Small Business Administration
(SBA), more than 70 percent of all family
businesses do not survive through the
second generation, and only 8 percent
make it to a third generation. There
are many reasons for this high failure
rate. The tactics outlined in this article
should help you enjoy a successful
transition regardless of your situation.
Selling your business to a family
member can be the logical choice. But
in preparation for this transition, it is
important to remember that family
members are still buyers-unique ones
at that.
When family doesn't make sense
Sometimes, the best choice is to sell to
a third party, as this story illustrates: A
few years ago, a business owner asked
me to represent him in the sale of his
business. His original goal had been to
sell the business to his oldest child, but
relations with this child soured.
He had owned the business for 15
years, was burned out and believed
42 intents aug-sept 2021
it was simply time to sell. He said he
suffered from high blood pressure, and
both his doctor and his wife told him he
was going to " work himself to death. "
His goal was to sell the business and
enjoy the rest of his life with his wife.
" She has been patient with me all these
years. Now it's her turn to be the boss, "
he said. He told me he thought his
business was worth about $1 million.
If we would have sold his business for
$1 million, it would have been the most
expensive mistake of his life!
Here are the details: His was a small,
well-established company in the
information business. He had fewer
than 15 employees, a single location,
did not own the real estate and had
no physical inventory. What he did
have was the only complete database
of customers/prospects in the area,
one that had been built over nearly 15
years. This database would be dificult
and time-consuming to replace.
After a thorough review of the
inancials, it was clear-on paper-
that the business should sell for $1
million to $1.3 million. So, if the only
consideration stemmed from the
inancials, it truly was just a milliondollar
business.
But what about the customer list?
What about the location? What about
the key employees? What about the
proprietary or patented materials and
processes? What about the business
reputation? What about the value
InTents August/September 2021

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