By Chris Parisi, Partner

Even with all the uncertainties we have seen in recent years thanks to inflation, higher interest rates and the COVID pandemic, the decision to sell or merge a family business remains at heart a microeconomic one—it’s mostly a function of the family’s circumstances, tends to be less cyclical in nature, and often has more to do with occurrences in the lives of the owner and his or her family than anything else. That is not to say these businesses are unaffected by the macroeconomic climate or market conditions in the industry in which they compete. But, in the end, M&A decisions among founder-owned companies tend to be more closely aligned with personal lifecycles than external factors. According to AARP, 45% of baby boomers consider themselves “entrepreneurs” and, with 10,000 boomers hitting retirement age each day, it’s no surprise that many business owners are motivated to consider a sale regardless of overall market conditions in a given year.

A recurring trend we have seen over the past 15 years is that family-owned businesses are less frequently transferring ownership to the next generation. With sons and daughters of founders choosing to pursue different career paths than their parents, this has created an array of new potential pathways for founders.

Here’s what we see most often when we interact with family business owners facing these critical junctures:

  • Business owner is nearing retirement age
  • Succession issues (e.g., children not involved in the family business or capital needed to effectuate a succession plan)
  • An unsolicited offer to buy the company has been received
  • Upcoming requirement for a large capital investment (new equipment, real estate, technology, etc.)
  • Recent changes in the owner’s health or marital status
  • News of a transaction involving a major competitor, customer or vendor
  • Regulatory issues from recent changes or enforcement

The process at these critical junctures can produce a great deal of uncertainty and apprehension. For founder-owners and families, it is often the most important financial decision of their lives.

If you are a business owner contemplating these issues, there are three things you should do right away—when you begin to even consider the possibility of a sale—to position your company in the best possible light when you call in advisors to begin the sale process.


Get your Financials in Tight Order

o Buyers and their lenders will evaluate your financial statements in a very prescribed way. At minimum, this includes reviewing monthly income statements, balance sheet, and statement of cash flows prepared in accordance with GAAP, utilizing the “accrual method” of accounting. Buyers will review financial statements and prepare their own analyses during due diligence. That’s why presenting accurate financial statements is more important than whether they are currently audited, reviewed, compiled or internally generated.

Develop a 3-year Forecast

Setting achievable goals and highlighting your competitive sustainability will give buyers a roadmap for where the company can grow and excel under their ownership. Be certain that the projected numbers are achievable in the proposed period, or, more simply, it is best to under-promise and over-deliver.

Focus on Sales and Growth

Your business today can fetch a price of X. If it were larger and more profitable, it could fetch X+Y. Any prospective buyer is going to look closely at the growth potential of your business. Therefore, prior to and during an M&A process, it makes strategic sense to work on growing your sales efforts, which may mean hiring additional sales reps and increasing your overall investment in growth initiatives. You should evaluate the timeline and payback period to make sure that projected EBITDA increases are achievable. Think of this like renovating the kitchen before selling your house—you’ll command a higher price if it’s a nicer property.

The Value of a Legacy

There is something especially gratifying about working alongside founders and families whose blood, sweat and tears have gone into their businesses, and being able to, in some small way, help them realize economic value from a lifetime of work.  The sale of a family business should never be just about chasing the numbers; rather, it is about the people you trust to help you make the best decisions about your legacy and your business.

Carl Marks Securities is a family-owned business, and many of our senior professionals have started, run, and sold their own enterprises. They understand at a personal level that baby boomers are keenly interested in liquidity options and addressing generational and succession issues in their companies and their families. This interest commonly leads to questions of whether to continue to try to grow organically, buy another company, merge into a larger entity or sell the business, either in whole or in part.

The most important thing any advisor can offer family businesses is a hands-on, highly collaborative experience from start to sell. Most family-owned businesses are private partnerships or single-owner/entrepreneurs. Because they have been laser focused on building and running the business, founders are often less familiar with the nitty gritty details of their financials or what factors come into play in selling or merging a company. We try to set expectations by explaining what the process is going to look like and hold hands with our clients throughout.

As we continue to experience an historic transfer of generational wealth, there will be a greater and greater need for M&A advisors who not only understand the full range of market opportunities, but can relate to clients on a human level and help them understand what can often be a daunting process. In the end, it’s all about helping the business owner and his or her family realize the greatest benefit while giving them a sense of satisfaction that they’ve arrived at the right outcome.

Our team has the in-depth knowledge and experience to navigate the complexities of the next phase of your business evolution. Partner with Carl Marks Securities to achieve your strategic and financial goals.