Institute For Family Business

      Kent Lutz- Advisors To Families In Business
To Sell Or Not Sell

                   Transitioning Your Business
                 “The Final Test Of Greatness”

Presented To:

American Association of Meat Processors July 24,2008


Kent Lutz


Institute for Family Business

Assistant Professor, Business

Entrepreneurship/Family Business/Finance

University of Cincinnati

Blue Ash College

Past Director

University of Cincinnati Family Business Center



American Association of Meat Processors       

The Decision Of Whether To Sell The Family Or Private Business Or Keep It In The Family Or Current Ownership Group Depends On Seven Key Questions.

What Should You Really Ask Yourself?

Question 1
Does The Family Really Want To Continue To Own And Manage The Business?


Is There a Passion Or Strong Affection For The Company And What It Means To The Family? Yes or No

Does The Successor Generation Recognize The Commitment They Must Make? Yes or No

Is The Successor Generation Committed, Willing To Take Risks, Work Diligently And If Necessary Make Sacrifices For The Business? Yes or No

Question 2
Is It Financially Feasible To Keep The Company

Can The Financial Security Of The Owner And Senior Generation Be Guaranteed Without Selling The Business? Yes or No

Most Transfers To The Next Generation Are Friendly Leveraged Buy-Outs In Which The Company Funds The Sale From The Senior Generation To The Next Generation. Can The Company Fund The Leveraged Buy-Out At A Price That Provides An Investment Portfolio For The Owner, But Is Not So High That The Company’s Ability To Grow And Prosper Is Impaired And Not So Low That Tax Authorities Will Challenge The Transfer Price? Yes or No

Question 3
Is There A Family Plan?

The Family Plan Is Important For The Results It Produces, For Family Communication, And The Conflict Resolution Process It Engenders. Families Who Intend To Maintain Family Ownership Through Multiple Generations Need And Use Family Plans. Does The Family Plan Address Ownership, Shareholder Rights And Obligations, Compensation, And Employment? Yes Or No

Does The Family Meet Regularly In A Business Setting To Review The Family Plan And To Discuss Business And Family Matters? Yes Or No

Can The Family Manage Conflict And Find Ways To Work Together? When There’s Discord, Can The Family Work Through It? Yes Or No

Question 4
Will The Owner(s)  Endorse, Support, And Legitimize A Succession Plan?

A Succession Plan Envisions The Eventual Transfer Of Leadership. Leaders Need Training And The Opportunity To Learn Through Experience. Will The Owner Facilitate This Process, Support It, And Cause It To Happen? Yes Or No

Has The Owner Identified A Role For Himself Or Herself During The Leadership Transition, A Role That Is Appropriate In Stature And Responsibility, And That Uses The Owner’s Experience And Skills? Yes Or No

Question 5
Is The Successor Generation Capable Of Family Business Leadership?

Leadership Is Intangible, But Most Of The Time Owners Know Whether There Is Successor Family Leadership But Appreciates Help From A Spouse, Outside Advisors, And Board Members. Is There A Family Member Who Is Capable Of Family Business Leadership Now Or In The Future? Yes Or No

Will The Next Leader Both Accept Responsibility And Be Acceptable To The Family? Yes Or No

Question 6
Is There Professional Help Available To Help Craft A Plan To Fulfill The Family’s Goals?

The Family Business Specialist Is A Facilitator Who Helps Define Planning Alternatives And The Means Of Achieving Family Goals. An Assessment Is Done To Determine Priorities. Not Every Family Needs A Family Business Specialist To Define And Help Implement A Family Business Plan For Succession And Continued Family Ownership, But My Experience Has Shown That Most Do. Is Outside Family Business Consulting Help Necessary For Your Situation? Yes Or No

If Yes, Is Professional Help Being Currently Employed? If No Why Not?


Question 7
Does The Plan Address Both Hard Side And Soft Side Planning

Does The Family Business Plan Address Economic, Tax, Wealth Preservation And Business Structure Issues, As Well As, Communication, Trust, Leadership, Succession, And The Achievement Of Family And Personal Goals? Yes Or No

Summary Of 7 Questions

Yes Answers To Questions 1,2,4, And 5 Are Especially Important If The Family Business Is To Be Kept In The Family. A No Answer To These Questions Suggests The Best Course Of Action May Be To Sell The Business Rather Than Have The Succession Plan Subsequently Fail.

To Sell Or Not To Sell
That Is The $64,000 Question?

For Many Families, A Family Business Is Like The Preferred Child-It Gets Lavish Time And Attention, While The Other Siblings Are Relegated To The Background And The Parents May Seem To Be Living Their Lives Through It. The Trophy Business Brings Them Renown, Status, And Importance In The Community. It Would Be Unthinkable To Consider Selling It. But Wait………

To Sell Or Not To Sell? Continued….

Do You Hold On At Whatever Price? Perhaps An Offer Is Just Too Good To Pass Up. Maybe  A Buyer Would Buy Your Competition If You Won’t Sell And Attempt To Put You Out Of Business( Car Dealership Example)

External and Internal Pressures For A Sale-Global Competition; Roll Ups; Capabilities Of The Next Generation; Family Members Who Have Ownership But Not Active In The Business May Develop Different Goals For Themselves; Unexpected Crisis May Impact The Business (Luxury Tax Example)


To Sell Or Not To Sell Continued…..

Just Because A Business Is Sold Does Not Mean It Is The End Of The Family As An Economic Unit. The Family May Now Have The Freedom To Reinvent Itself In A New Form-Conflicts May Go Away-The Next Generation Can Make Its Mark In A New Arena-And The Ownership Generation Will Be Assured Of Their Financial Security. The Sale Of The Business Provides A New Opportunity For Balancing The Past With The Future

To Sell Or Not To Sell Continued….
On The Other Hand-Hold On

Pascal’s Wager-Do The Benefits Of Holding On To A Family Business Demonstrate A Conviction That Such Benefits Of Continuing The Business Into The Next Generation Are Greater Than The Financial Risks Of Doing So?

A Liquidity Event Creates Financial Security For The Family But It May Cause Psychological Loss Associated With Being Part Of A Family Business, As Well As, Eliminate The Opportunity Of The Next Generation To Experience Its Family Values Expressed Through The Family Business.

How Do You Teach Family Values To The Next Generation As Effectively When The Family Now Has Significant Liquidity But No Business?

When A Family Is Strongly Committed To Its Values, Its Business Becomes A Training Ground For Addressing Life’s Never Ending Problems Both Inside And Outside The Business.

By The Time A Family Business Has Survived Several Generations, It Has Developed A Powerful Sense Of Family.

The Experience Of Coming To Work Everyday Along Side Your Family To Make The Business Thrive And Survive Cannot Be Duplicated In Any Other Way. It Helps Parents Teach Their Children Good Values, A Sense of Responsibility, Solid Ethics, And Sound Judgment.

The Key With Keeping The Business In The Family Is To Make Sure Professional Procedures And Systems Are Put In Place So That The Business Is Run As A Business And The Common Expectation Of All Involved Is Performance.

Steps To Consider If You Decide To Sell The Family Business

Establish The Owners Objectives-When Do You Want To Sell; What Is The After Tax Annual Income I Want After I Sell; Who Do I Want To Sell The Business To?

Establish A Value-If Business Is Sold To A Third Party A Certain Value May Be Established, While Gifting And Selling To A Family Member(s) Another Value May Be Established-In Any Case, A Ball Park Value May Be Established, Along With A Formal Valuation, And A Marketability And Pricing Analysis.

Promoting Value-Your Business Has Certain Unique Drivers That Help Establish Value-Management Team: Operating Systems; Established And Diverse Customer Base; Appearance Of Facilities; Growth Strategies; Financial Controls; Stable And Increasing Cash Flow; Tax Efficient Business Structure; R&D;

If The Business Is Sold To A Third Party You Want To Maximize Value And There Are Ways To Sell-Controlled Auction To A Qualified List Of Potential Buyers; Negotiated Sale Where Owner Or Prospective Buyer Have Identified Each Other. A Team Of Advisors Needs To Assist In The Process, Including Your Family Business Consultant.

If The Business is Sold To Family Or Insiders, Then The Process Is Not A Sprint But Rather A Long Term Process Where You Are Paid Over Time. The Income Tax Consequences Of The Transfer Must Be Minimized To Both The Seller And The Buyer And The Departing Owner Must Concentrate On Getting Maximum Security For Payment Of The Purchase Price.


Additional Considerations For Exiting A Business-Not Just Selling The Business

Contingency Planning-What Happens In Case There Is An Untimely Death? Or Disability? Bonding Issues; Personal Guarantees; Customer Relationships; Advisor Relationships; Intellectual Property; Franchise Agreements; Patents; Bench Strength; Leadership; Estate Issues; And Financial Arrangements? 

Wealth Preservation Before And After Sale, Death, Or Disability-Direct Strategies Need To Be Put In Place Before Some Sort Of Transfer Of The Business Takes Place To Maximize Family Wealth Planning


It’s Not Easy To Plan For The Ultimate Transfer Of A Family Or Private Business, But Plan For You Must As It Is…..


                   “Your Final Test Of Greatness”




Kent Lutz

Institute for Family Business

Assistant Professor, Business

Entrepreneurship/ Family Business/Finance

University Of Cincinnati

Blue Ash College

Past Director

University Of Cincinnati Family Business Center



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