The issues facing owners dealing with family business exit planning are quite often more complex than a business owner looking to exit their business. There are several factors that make family business exit planning more complex:
There are often multiple stakeholders involved.
Stakeholders may be part owners in the business. Or they may be family members who will continue to work in the business or become an employee in the business. Stakeholders also include employees and the management team. Often spouses and dependents of owners of family members have input into the process. Often in estate planning, these parties are planned beneficiaries who have clear interest in how the business is sold or transferred.
There are often multiple corporations involved in family business exit planning.
There may be other family-owned businesses that are linked to the ongoing success of the business. Examples would be a corporation that owns the building in which the business is located. Or there may be other businesses owned by the family that provide services.
There is more emphasis on assuring the continuity of the business in family business exit planning.
One the main differences between planning for businesses that are being sold to a third party and those where the new owners will be to related parties is that the primary objective of ownership transfer is to assure the continuity of the business for the benefit of the new owners.
There may be a difference in the economic value of the business.
When selling or transferring ownership to new internal owners often the business value is less than that which can be found from an outside buyer. If there is a significant difference between these values, then the decision needs to be made as to whether or not selling the business to an outside 3rd party and using the proceeds to benefit the family is a better option. For example, when selling to the employees to an ESOP, the value that can be used is limited to fair market value and established by an independent, qualified valuation firm. When selling through a Management Buyout, the management may not be able or willing to pay market price for the firm.
To learn more about these issues and other issues in exit planning, please go to The Exit Architect Academy, a platform designed to educate business owners about the many aspects of exit planning.