When It’s Time to Break Free of the Family Business

7 steps that will make your exit easier for everyone.

Sometimes family members need to get out of the family business.

While you may still embrace the cherished legacy of the family and the company, it’s important to know when it’s time to be liberated from it too, to pursue your own goals. If you are considering breaking free, keep these steps in mind.

1. Clarify Your Exit Goals: Start by defining your personal goals and motivations for leaving the family business. Define your ideal timeline, financial needs and long-term goals. This clarity will guide your decision-making and inform your exit strategy.

2. Evaluate Business Readiness: Assess the readiness of the business to function effectively without your day-to-day involvement. Evaluate the leadership and management team, organizational structure and operational processes. Identify areas that may require improvement to ensure a smooth transition.

3. Consider the Four Most-Common Options:

a. Family Succession: If there is a capable family member or members willing to take over your role, consider how to make that happen. You may need to prepare them, establish a succession timeline, and address potential conflicts or challenges.

b. Management Buyout: Explore the possibility of selling your ownership stake to key managers or a management team within the business. This maintains continuity and creates an opportunity for existing management to take control.

c. External Sale: Selling the business to a third party, such as a strategic buyer or an investor, may provide liquidity and allow you to exit the business entirely. It typically requires a valuation, identifying potential buyers, negotiating terms and executing a sale agreement.

d. Merger or Acquisition: Consider merging your family business with another company or being acquired by a larger organization. This option can provide growth opportunities, synergies, and a smooth transition for both the business and its employees.

4. Seek Advice: Don’t do this solo. Engage a team of professional advisors: attorneys, accountants, business valuation experts and consultants experienced in family business transitions. Exiting a family business is complex and you need objective advice to assess financial implications, facilitate negotiations, and ensure compliance with legal and tax requirements.

5. Develop a Plan: Once you have chosen an exit option, develop a comprehensive succession plan with specific steps, timelines and responsibilities. It should address ownership transfer, management transition, employee communication, and any legal or financial considerations.

6. Communicate: Open and transparent communication with family members, key employees and other stakeholders is essential. Discuss your plans, manage expectations, and address any concerns or challenges that arise during the transition. Encourage constructive dialogue to maintain family harmony and business continuity.

7. Execute the Exit Plan: Follow your outlined steps while coordinating with your professional advisors, and ensure all legal and financial aspects are addressed. Monitor the progress of the transition and adjust as needed to ensure a successful exit from the family business.