A guide for family businesses to managing an exit strategy

Being part of a family business does not come without its challenges, however, family businesses also provide a wealth of benefits for individuals and the wider economy. Despite this, working with family members is not for everyone, therefore, it’s important to have an efficient exit strategy in place for when it’s time to part ways.

Alexander and Co, a family business professional services firm with offices in Manchester and Salford, has put together a guide on how to create and manage an exit strategy for a family business, so that the transition into a new role is as smooth as possible.

Family Business - Is the decision to leave the business the right one?

Before making any significant changes, it’s important to assess whether leaving the business is the right decision. Firstly, consider and review the reasons for wanting to leave. Is it for a completely different career path or unhappiness within the current role. Have any family conflicts or politics contributed to the decision?

Depending upon the answers to these questions, there could be other solutions other than leaving the business such as: moving on to a better suited role within the business or introducing different processes to help avoid conflict within the business. One of the key advantages to being a part of a family business is flexibility. Therefore, make the most of this advantage and explore the other options available to reach a solution, rather than leaving the business.

Exiting the business - what will happen afterwards?

If all options have been explored and considered, it may be that leaving the business or exiting is the right decision to make. At this point, it’s worth considering all of the different exit strategies that are available.

The chosen exit strategy will largely depend on what the medium to long term business plans and goals are. Passing on responsibility to another family member is one option to consider, or even selling the organisation altogether. The selected option will dictate the course of action that follows. Below, we explore these options in more detail.

Passing the business onto someone else

There are several options to consider if the business or organisation is to be passed onto someone else. This could involve passing ownership onto another family member or hiring someone to fill the role. In all of these scenarios, the person filling the position will require proper training and sufficient qualifications to ensure a seamless transition, helping the business to keep running as usual.

In many cases, family business owners choose another family member who already knows the ins and outs of the organisation, to take over the soon-to-be vacant position. However, this isn’t always a viable option. In this case, someone outside the company will need to be trained in the role instead.

Selling the organisation

Making the decision to sell the family business is not one that should be taken lightly, but sometimes this course of action is needed. In this case, ownership, timing, risks and pensions will all need to be considered.

The typical sales process for a private company involves seven key stages. These are:
1. Finding buyers
2. Contacting potential buyers and gaining interest
3. Pricing or valuing the business
4. Assessing the potential returns of the transaction
5. Drafting the necessary documents
6. Tax management
7. Completing the deal

Selling a business can be a risky and lengthy process, which is why it’s always best to enlist the help of professionals during the process. This can also provide peace of mind that the transition to new ownership will be as smooth and as cost-effective as possible.

Informing family members of the plans

In order to avoid conflicts or disagreements, it’s a good idea to establish an open dialogue with all family members and business partners to provide as much detail and clarity as possible on what will happen after any exit has taken place. Emotions often run high in family businesses and it’s easy for messages to get misconstrued. As a result, communicating clearly about the decision can help avoid any heated discussions and make the transition as painless as possible.

Whilst not everyone within the organisation may agree with a family owner’s decision to leave, it’s likely that family members will still offer their support in whatever role owners choose to pursue upon leaving the family business.