Do You Need to Sell Your Family Business?

While you agree that you are a family enterprise, there is a good reason why so few Family Enterprises are passed down to the next generations within a family. Successful continuity planning of a Family Enterprise is complex, and dependent on many factors, including whether the current owner:

• Sees business, regulatory, and other trends on the horizon that will challenge the ability of the next generations to continue to manage the enterprise with the same chance of success,
• Feels the next generation is not equipped to run at the speed needed to sustain competitive growth,
• Is themselves not prepared to invest the time, effort, and money to “pass the baton” successfully,
• Feels that there is no other practical leadership option to sustain the continuity (e.g. professional management), or
• Frankly needs the proceeds of the business sale to fund their lifestyle, retirement, and philanthropic goals.

A business will undergo various lifecycle stages over its existence, from foundation to termination.  

According to research conducted by Dr. Ichak Adizes, founder of the Adizes Institute, there are in fact 10 stages in the corporate lifecycle, and it is important when deciding whether to keep the Family Business in the family to consider the serious lifecycle challenges that lie ahead.

1. Courtship	The initial development or creation of the proposition/model/business/formation/etc.
2. Infancy	After launch – the start of active trading
3. Go-go	Frantic, energetic early growth and sometimes chaos
4. Adolescence	Still developing but more established and defined
5. Prime	The business or organization at its fittest, healthiest and most competitive, popular and profitable
6. Stability	Still effective, popular, can still be very profitable, but beginning to lose leading-edge – vulnerability creeping in perhaps
7. Aristocracy	Strong by virtue of market presence and consolidated accumulated successes, but slow and unexciting, definitely losing market share to competitors and new technologies, trends, etc.
8.Recrimination	Doubts, problems, threats and internal issues overshadow the original purposes
9. Bureaucracy	Inward-focused administration, cumbersome, seeking exit or divestment, many operating and marketing challenges
10. Death	Closure, sell-off, bankruptcy, bought for asset value or customer-base only

According to research conducted by Dr. Ichak Adizes, founder of the Adizes Institute, there are in fact 10 stages in the corporate lifecycle, and it is important when deciding whether to keep the Family Business in the family to consider the serious lifecycle challenges that lie ahead.

With so many business lifecycle stages to anticipate and navigate through to keep the business vital, it is not surprising that most business owners head for the exits to sell off what may be the most valuable asset they own. Family Enterprise Advisors call this important decision process “the 4 L’s of Continuity”, consisting of:

• Legacy – what is the legacy the current owner wants to leave behind—a chaotic outcome where family members stop talking to one another because they can’t cope with the responsibility (typically because continuity was badly executed), or an orderly and happy family outcome?
• Liquidity – does the owner require the funds during his/her lifetime for lifestyle or other purposes, which may force a sale?
• Lifestyle – is the enterprise family genuinely prepared to devote the considerable time and effort required to grow the family enterprise, or would they prefer a more passive lifestyle “collecting dividends and interest”?
• Leadership – do leadership skills exist to sustain the family enterprise?

As we have mentioned, just because a business is sold off does not mean the Family Enterprise is doomed to end. Many families have sold their businesses, and reinvented themselves successfully as a Family Office, with roles better aligned to the skills of the next generations, supplemented where needed by external professional management. 

As the proceeds of sale from the disposition of a successful family business or real estate portfolio can be very material, Family Offices are becoming much more popular and common post sale structure in Canada. 

There is a reason why so many successful businesses get bought for very attractive multiples of their profitability and that is precisely because they are so hard to replicate, and buyers know it! So congratulations to those families who successfully navigate the choppy waters of business continuity planning to pass the baton like an Olympic relay runner. 

Decision Tree Question: Do you need to liquidate the family enterprise during your lifetime?