Family Business: The Right Time To Sell?
An overview from 'The Family Business School'

Four years ago, 'Uncle Edward' and 'Aunt Emma' decided to sell their family business – a company that had been making letter envelopes for over 30 years.

At that time, Uncle felt that, with the growth of e-mail and other forms of communication on the Internet, the envelop-making business had become obsolete. His heart was telling him it wasn’t the right time, but he listened to his head. So, when a pair of young businessmen offered to buy their company, he reluctantly agreed.

As it turns out, he should have followed his first instinct.

Uncle Edward divided the proceeds of his company's sale among his four sons. The family learned quickly that investing their money was not as fun as having a business to run. Since he sold the family business, Uncle has never been the same, either. He is constantly bed-ridden due to a succession of small ailments and when he's up and about, he's so grumpy and irritable that everyone just tries to stay out of his way. He is not a happy chappie. He was really not ready to part with his company but was driven by his fear of obsolescence to make the deal.

And his envelop-making company? In just four short years, his former company has nearly doubled in size. It turns out that the two young businessmen had the inside track on close to a hundred schools and colleges on the East coast. Despite the dawn of the Internet age, educational institutions were always in need of envelops, so the company prospered.

The moral of the story is that one should listen to both head and heart when selling the family business.

But how exactly does one know when selling the family business is the right thing to do?

To answer that question, let’s look at the various reasons why families decide to sell the family business.

Ross Nager of the Arthur Andersen Center for Family Business in Houston says the reasons for selling the family business can be broken down as follows: "two parts economics, three parts need and four parts emotion".

Like Uncle Edward, many people decide to sell their family business because the potential for growth has faded and they feel that now is the best time to sell. Well, if they are reading the situation correctly, that's a perfectly good reason to sell. Another good reason is if the family gets an offer that is so outlandish that it is impossible to refuse.

Sometimes, the head of the company sees no logical successor within his family to run the business and doesn't want anyone else running "his baby," so he decides to sell.

On the other hand, some companies have several family members qualified to succeed the company head. This can result in fierce competition and constant quarreling. Under these circumstances, the head of the company can decide to sell to prevent the family and its business from falling apart,

These are all sound economic reasons to sell a family company, but then, economics is only one part of the equation. It is listening only to your head.

When it's time to consider selling the family business, it pays to weigh the emotional consequences of such a decision. Failing to listen to your heart can take a heavier toll than the economic or practical aspects of such a sale.

For example, running a family business can make family members grow together and learn to depend on themselves for the things that they want. It can give the family great status in the community. Is the family prepared to give these things up?

Having a family business allows a family to continue to contribute to their favorite charity and other philanthropic initiatives. They can also provide their future generations with the same financial security and opportunities that were bestowed upon them. This is the kind of thing that makes families strong. Can the family leave these behind?

And don't discount the impact of the wishes of past generations. Sometimes it's difficult to move past a sale if you're burdened by guilt for betraying the dreams and legacy of your ancestors.

The bottom-line is that the family's goals and objectives should be the main consideration. It's not just a matter of money, but a matter of what's best for all -- economically and emotionally. Listen to both your head and your heart. Sometimes it's the emotional aspect of the equation that will lead you to the best decision.