When there’s no logical successor
Planning considerations for selling the family business
Not all family-run businesses are passed onto the next generation. One business owner’s dream or effort may not be easily transferred or resonate with the next generation of the family. Depending on the circumstances, which can include children or grandchildren unwilling or unable to take over the reins, some business owners – like our case study example – may decide to sell the business instead. What are some of the important planning considerations?
A successful entrepreneur in her early 60s, Carolyn* founded her business supplying custom picture frames, mat boards, DIY framing supplies and fine art printing services in the Greater Toronto Area in the 1980s. Having trained as a lab technician, Carolyn opted to become a stay-at-home parent after having her two children Charlotte and Jessica. Her lawyer husband Robert, now retired, was able to comfortably support the young family.
Carolyn’s journey into business was unexpected. A keen photographer, she was always frustrated by what she considered the ‘inadequate’ quality of picture frames available to showcase the many family portraits of her own children as well as those of her friends. With help from her father, a retired carpenter, Carolyn developed a number of unique, well-made frames, which soon prompted demand from family, friends and acquaintances. This small venture formed the basis of her vision, which grew with the aid of a small business loan.
With her young children now both at school, Carolyn’s manufacturing operation expanded rapidly amid a boom in demand for unique and quality home décor products. Carolyn was able to expand her product line, distributing frames, framing supplies and kits throughout North America. Her team has grown to the existing 100-plus employees, many of whom have remained with the company since its launch in 1984.
About 12 months ago, Carolyn started to consider the idea of succession and the possibility of selling the business after more than 30 years of exceptional hard work and effort. She is mindful that there is no logical successor for the business given neither daughter is interested in taking it over. Charlotte, 41, has her own young family and is based in New York, where she works as an investment banker; and Jessica, 39, is a managing editor at a magazine publishing group in Toronto.
But the catalyst for the decision to move forward with selling was a recent health scare for Carolyn. As a result, she has thought more seriously about retirement. The timing seems right: Carolyn feels ready to ‘let go’. Moreover, the company is in good shape with a history of profitability, a solid balance sheet and a good customer base. Once she sells the business, Carolyn plans to take a break and then take up a semi-retired lifestyle.
*A fictional family situation for illustrative purposes only.