Small businesses have long been the heart and soul of the U.S. economy and the U.S. Accounts Receivable Management industry alike. It wasn’t too long ago that most entrepreneurs dreamed of starting a business that they could pass down to the next generation when they are ready to retire.  This has changed dramatically in recent years as the vast majority of owners now envision selling the business outright instead. This raises several major challenges for family-owned businesses including the need for properly establishing value and a plan for transitioning ownership of a business.

First, do owners have a firm understanding of their business’s fair market value? Sadly, the answer is usually, no. While hard facts are short on this topic, our experience in working with family-owned businesses is that the owner(s) tend to be overly optimistic about value and believe the business is worth far more than it will likely generate in a competitive sale process. This especially holds true for smaller companies (i.e., less than $5 million in annual revenue). Many owners are, understandably, emotionally attached to a business they developed and that has afforded them a relatively comfortable lifestyle. As such, it can be hard to hear that the business isn’t as valuable or easily transferable as expected.

Second, most business owners are not taking the necessary steps to prepare for an outright sale in advance. Asking an owner to plan for a future when they aren’t involved in the business can be challenging to say the least. Further complicating matters is the potential that the next generation may not want anything to do with the business and senior leadership has no desire or financial ability to own a business.

So where does this leave the business owner(s) and how can Kaulkin Ginsberg provide guidance on the road to divesting a family-owned business? By working together, we can create a multiyear plan on how best to maximize value and transition ownership. The process is one that requires a high level of trust and respect and should be conducted over a sufficiently-long period of time in order to fully realize the benefits of this partnership.

We strongly suggest business owners start by conducting a fair market valuation and operations assessment for their business. You want to understand the value drivers and detractors of your business, as well as the opportunities to maximize the business’s value well in advance of a sale. Without proper planning, you won’t have enough time to fully realize the benefits of any changes being made to the business

Ultimately, transitioning a business from one generation to the next (or to someone outside of the family) can be a stressful process. Having an advisor that works with you to prepare the business for an eventual transition in ownership, regardless of the party, by identifying and correcting potential areas of concern that could prevent you from realizing your financial and familial objectives is an important step in alleviating at least some of this stress. However, it is important to choose your advisor wisely and ensure that they have yours and your business’s best interests in mind.