What if there is no son or daughter who can or wants to take over the family business? Then selling the family business is an obvious option. But how does this work?
A family business is a well-known term in the Netherlands, and for good reason. More than 70% of all businesses in our country are traditional family businesses. A family business has different characteristics, but must carry at least two of the three characteristics listed below:
- More than 50% of the authority lies with one family;
- More than 50% of the business is owned by one family;
- A majority of executives come from one family.
Reasons to sell family business
Lack of succession is the main reason for putting a family business up for sale, but there are other reasons. Consider:
- Lack of ability to expand, preventing expansion;
- Too strong competition;
- The shareholders want to liquidate their assets;
- Shareholders want to spread investments.
Selling your family business
When there is no succession from within the family, various emotions often prevail. It is disappointing when there is no offspring willing to take over the day-to-day management. Sometimes there is the possibility of selling the family business to other family members, but otherwise it is a matter of finding an outside party.
With family members, you may be more inclined to adjust the financing of the acquisition. Consider a subordinated (family) loan or an earn-outarrangement. If you are selling to an outside party, you are probably a lot more businesslike about this.
Family statute or shareholder agreement
Family businesses often lay down their agreements in a family statute. This is an agreement, in which all values are addressed and agreements are recorded. Plans with an eye on subsequent generations, and in-laws, are also regulated in the bylaws. However, this is no substitute for the shareholders' agreement.
A shareholder agreement is a legally valid document. Based on it, you can legally enforce things, but also arrange things properly when an external shareholder is involved.
Sales process of family business
When the sale of a family business goes through, there is often a great emotional release. The family is relieved and disappointed at the same time, because a family business often covers their entire daily lives. After the transfer, the business is often still closely followed, as it is also somewhat difficult to let go.
But how do you arrange a business acquisition? Always engage the right advisers. With guidance from a professional, you can enter into discussions with interested parties so that you are not alone. Making choices based solely on emotion is not wise. An expert can make a situation analysis so that the input of potential buyers is directly considered. In the case of a family business, it is essential for the shareholders to know that it will be continued. Preferably in a way, which they approve of.
Both the buying and selling parties can submit a proposal, with the adviser acting as a mediator. Clear communication is half the battle. By pursuing a transparent process, you monitor progress well. If something is not feasible in the process, around the sale of the family business, this will quickly become clear.
Steps to sell your family business
To properly prepare for the sale of your family business, we have prepared a concrete step-by-step plan for you:
- Vendor due diligence | Always start by doing your own research. You might think that the obligation to research lies with the buyer, but as a seller it is good to know what you actually have to offer and what the financial picture looks like independently. In addition, you will receive a solid research report on your own business, which you can give to the buyer in advance, thereby creating confidence;
- Preparing to sell | For the sake of convenience, let's assume that no buyer has knocked on the door yet, but that you already know that the family business is going on display. This starts with the research, as well as the administrative part. Make sure everything is up to date and in order and also legally prepare for any transfer;
- Communication between buyer and seller | Once a potential buyer has emerged, it is time to offer insight into the business operations. Of course, this involves a bit of exchange, to which confidentiality applies. Otherwise, anyone can get their hands on your business secrets just like that. The sales memorandum is like introducing the business before negotiations begin;
- Business valuation | Negotiations take place partly on the basis of the business valuation. What is the family business worth, based on supply and demand and market conditions? A good way to calculate the value of your SME business is through the EBITDA multiple;
- Due diligence & financing | Once negotiations have taken place, it's time to put the bills on the table. It is now the buying party's turn to do due diligence ánd to get financing;
- Purchase agreement | The final step is to complete the sale: the so-called closing. After the official takeover, it is time to execute the transfer, after which the sale of the family business is complete.
