Selling to a third party
This option entails a detailed examination of the inner workings of your business by the purchaser (i.e. due diligence), which can be extremely difficult for you. In many cases, the price/value you are expecting to receive is much higher than what the purchaser is willing to pay. This can lead to a long and painful negotiation process. As part of the buy-sell agreement, you may have to agree to stay on as a manager for a certain period of time (e.g. between two to three years) while the business transitions to the new owners. This can be demoralizing, as you would no longer have decision-making authority and you may not agree with the changes being made to the business you spent your life building. Experience would indicate this process is always more difficult than anticipated on the exiting owners. However, with this option, your financial retirement is more secure and, in some cases, you are able to make a clean exit.Â
Long-standing managers may be interested in purchasing the business and continuing your legacy. This is often a more desirable option for business owners, as their hard work and dedication remains intact and carried on by managers they know and care for. You may need to decide who is the most competent manager to run the business among those who work for you, while considering whether they can afford to buy it. Further, if more than one manager is interested, there is no assurance they would be compatible as co-owners or even want to be partners in the business. Typically, you will need to fund all or part of the transaction (e.g. vendor take back), since the managers will be counting on using the business’s profits to pay you over time. This means there is a higher degree of risk for you with respect to your retirement. However, when the conditions are right, this option tends to bring more satisfaction and comfort to the exiting owners than an outright sale to a third party.
Family business transition
This involves passing the business from one generation to the next, with the hope of continuing the family legacy for years to come. This option also presents its share of challenges, even when it’s the owner’s preference.Â Research demonstrates that although most owners prefer transitioning their business to their children or nieces and nephews, 67 per cent of companies don’t make it to the second generation, while 88 per cent don’t make it to the third generation. Given the number of family-owned and operated businesses in the jewellery industry, the desire of these owners to transition to their children, and the dismal succession statistics in trying to do so, this article focuses on the information family business owners need to know to successfully transition their companies.