Business Owners

The exit window

For many founders and family business owners, the question of whether or not they should retain or sell their business is often a complex one.

A sale can be an exciting moment that secures their family’s financial future, but it can also cause feelings of guilt as they dispose of something so closely intertwined with their sense of self-worth or generational pride.

Years, decades and sometimes entire lifetimes are devoted to building successful companies—so much so that “going to market” can mean a fundamental reckoning with one’s (or one’s family’s) entire identity.

Experience shows that navigating the sale of a business demands just as much, if not more, foresight as starting one. Running a successful enterprise may be familiar territory, but the challenges of realising an exit can be entirely new.

In this article, we invite founders and business owners to look inward and ask fundamental questions about the future of their companies, and to contemplate how an exit might align with not just personal aims, but their family’s longer-term objectives.

Points of focus

Every business and family is unique, each possessing a vision for the future of their wealth and how that aligns with their values. As such, there’s no one-size-fits-all approach when it comes to family business exits—each one requires a process that’s highly personalized.

Some businesses, for example, are founded to preserve the family legacy, with the express intention of “passing down” wealth and skills to future generations. Others, in perhaps a more recent phenomenon, are founded with the intention of maximizing profits and realizing a quick exit.

Regardless of founding purpose, the most successful businesses are guided by a clear mission statement. Before deciding the route to exit, experience shows that better results may be achieved when the views of all stakeholders are aligned through a clear communication of everyone’s respective objectives and expectations.

Questions to explore are:

Is the family the best custodian of the business to take it forward and help it grow in the future?
What role do different family members want to continue to take in the business, if any?
Should the family consider a full or partial sale? Which option is better for the family, and for the business?
Could a significant injection of capital help facilitate growth?
If the family decides to exit, what value do family members expect to realize?

Timing is also crucial. The cost of waiting too long to sell can be just as damaging as rushing in. History shows that the most successful transactions are executed at a time when businesses are performing strongly and have the metrics to match. It is also important that founders balance their ambitions with those of their co-founders, board members and investors. These conversations might mean that a founder’s shopping list of wants aren’t completely met, but the ability to compromise often leads to a better sale process and potentially a higher value overall. For this reason, involving as many key decision makers as possible during preliminary exit discussions is absolutely vital.

Not all exits have to result in a full departure. Depending on the make-up of the business and its balance sheet, the disposal of a smaller stake may better facilitate certain goals. In particular, it can allow the founder to remain in place while getting a fresh injection of outside capital and expertise. Assessing these specific requirements with an experienced, dedicated advisory team can help business owners and their families arrive at the best possible arrangement to support their aims and future plans, both inside and outside the business.

Family matters

As mentioned, the sale of a family business can be an emotional time for everyone. The founder may be selling their life’s work. The next generation may be facing the disposal of a company they aspired to take over. There are inevitable disagreements that can arise from going through a disposal that a family will need to work through.

On the other hand, family members may come to embrace the positives that can be realised from their new-found wealth, including greater freedom to choose their own path, rather than being tied to the family business. Again, all these issues can be best addressed through clear communication, with each family member’s wants and expectations being clearly understood.

Bereavement, divorce and incapacity may also compel families to consider liquidity event planning, even if they’d never thought about it before. Inflation and economic downturns can have a similarly disruptive effect. Though you may not wish to sell today, there may come a time when exiting becomes the most viable option. This is why preparedness is imperative.

Should the family proceed with an exit, the process can take up to 24 months, and it’s rarely just a question of money. A large part of the process is readying the business for the next phase: naming potential successors and building management teams that can steward the future of the business is crucial.

Descriptive audio

Maricé Brown: We’re doing a lot for entrepreneurs right now at the J.P. Morgan level — not only at the Private Bank, but I think the fact that we are present here in the U.K. from an Investment Banking perspective, a Commercial Banking perspective… we’re in a unique position to help those entrepreneurs, especially when they’re just starting, in thinking about raising money, exiting, but also planning for the future.

And so, I think that combo we provide to our clients, in terms of the types of advice on different fronts of their lives, is highly valuable for them in a place like the U.K., where a lot is happening right now. The promise here of growth, development and potential exits is really high, and we’re here to serve them along the way.

James Chilvers: We’ve had a presence in the U.K. for over 170 years, working with business, families and entrepreneurs from across the country. Our presence in Manchester, Edinburgh, Glasgow, London, Bournemouth — and the number of people we employ in the U.K. — demonstrates our commitment as an organisation to the U.K.

We are there on the whole journey for our U.K. entrepreneurial clients and families as they think through the meaning and purpose of their business and wealth is, and how they’re going to build a strategy around succession to that business, or indeed, potentially an exit from that business in the medium to long term.

MB: There’s another thing that comes up in a lot of these conversations with families, especially when it’s first-time entrepreneurs selling their businesses and going thorough exit, which is: how much is enough?

JC: I think it’s really interesting. As we speak to entrepreneurs from around the country, so few people know what their number is. So what is the amount that our family needs as a safety net or an iron reserve to continue to meet our lifestyle needs for the rest of our days? And that’s a piece of work that we regularly help and support our clients in identifying.

MB: And that’s the power of a global firm at the end of the day. When we think about bringing global resources to a local market, I think that’s one of the benefits of working with a bank like us.

JC: We are very keen to ensure that our entrepreneurial clients are surrounded by the right kinds of advisors, and often we will be asked to help them discover who those might be. We have a fantastic network of third-party intermediaries — lawyers, accountants, and others — who can be introduced to our entrepreneurial clients and support them on that journey. To ensure that they’re taking the sort of, right independent tax advice as they approach a potential business exit is absolutely crucial, and we can really help them surround themselves with the right team there.

We live in an age where things are changing fast, and not every next generation wants to take over the family business. One of the things that many business owners will think about is what legacy are they going to leave behind. What are the values that underpin the business that we founded and have grown? And what is our vision and purpose for that business, and maybe the wealth that could be generated from it?