Accounting firm Rothstein Kass has released a two-part survey report on the potential problems that can occur when preparing to sell a family business.
The report, Heading for the Exits: Preparing for the Sale of a Family Business, evaluates the near- and intermediate-term outlook for family business owners considering the sale of a majority stake. The two-part report includes the findings of a survey of 382 C-level executives of first-generation, family-owned enterprises that were actively considering sale of a majority stake in their companies.
The report finds that inaccurate or outdated business valuations can make it more difficult to determine if a proposed sale will yield a fair price. Family disputes and insufficient attention to advanced planning functions can limit after-tax profits resulting from the sale.
"Our latest research suggests that for almost all companies pursuing a sale within the next two years, monetizing the value of the business is a vital motivation, with nearly 97 percent of survey respondents reporting that liquidity concerns factor into their decision to sell, said Tom Angell, principal-in-charge of the Commercial Services Group and Private Equity practice at Rothstein Kass. At the same time, nearly 95 percent of business owners reported that getting the best price remains a central concern. Outdated or inaccurate valuations make it more difficult to determine the optimal sale price in a proposed transaction. With that in mind, it was somewhat shocking to discover that over a third of firms considering sale of a majority stake have never had a formal business valuation performed."
The report found that nearly 92 percent of family business owners are concerned about the financial performance of the business enterprise, while 65 percent of survey respondents report that limiting stress and disputes within the family are important concerns. Nearly 45 percent expressed concern about the availability of credit, with 69 percent of those pursuing a short-term sale in agreement.
Nearly 30 percent of companies considering a sale within the next two years have not had a formal business valuation in the last three years. More than 70 percent of businesses with a longer timeframe for sale have not had a formal business valuation in the last three years.
Fewer than 27 percent of respondents have taken steps to mitigate the tax consequences of the sale of a majority interest of the family business. The most commonly reported reason for not pursuing advanced planning at roughly 47 percent is because other family members will need to get involved. Almost 70 percent of family members would oppose the sale of the business to outside interests.
Over 87 percent of family members opposing a sale to outside interests are concerned that they wont get a fair price. Sixty-one percent of family members opposed to a sale to outside interests believe that other family members should have an opportunity to run the company. More than 66 percent of business owners planning a sale within two years and nearly 50 percent of all respondents have already transferred shares in the company to family members.
The report is available at Rothstein Kasss recently enhanced Web site, www.rkco.com.
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