Exit Planning (Part 1): Knowing When It’s Time to Sell Your Lower Middle Market Company

A Series by Align: Your Trusted M&A Advisors

Selling your life’s work can be a daunting decision. You’ve poured your heart and soul into building a successful company and know your industry inside and out. But at some point, every entrepreneur considers when the right time to exit might be. This series will explore the various reasons why you might hesitate to sell, followed by key questions to guide your decision-making. We’ll also show you why, in some cases, a sale could be the best move for both you and your business.

We’ll start with the most common thing we hear – a desire to pass on the business from generation to generation rather than sell.

The Family Legacy: Can Your Children Take the Reins?

For many entrepreneurs, the dream is to pass the business on to their children, ensuring a family legacy. However, before setting your sights on this path, it’s crucial to ask some critical questions:

• Do Your Children Want to Run the Business? Not every child shares their parent’s passion for the family business. Open communication is essential to understand their career aspirations and skillsets. Are they equipped with the experience and desire to lead the company forward? They may have pursued higher education in a field completely unrelated to your business or prefer a career path other than entrepreneurship.
• Financial Security Through Profits? Passing on the business ownership doesn’t guarantee a steady income stream. What happens if the business encounters challenges? Reliance on a single source for retirement income creates vulnerability. Remember some of the trials and tribulations you went through during down years, and consider whether your heirs would prefer a more stable income.

Why Selling May Still Be the Best Option

While passing the business to your children carries sentimental weight, there are compelling reasons to consider a different path:

• Beyond Business, Building Family Wealth: Selling your company can generate significant capital. Trust and estate planning tools allow you to share that wealth with your children while securing your own financial future. The investments can be diversified to provide them stable income even in uncertain economic situations.
• Protecting Your Retirement: If the business falters after your handoff, you might be forced back into the fray to ensure its survival. M&A eliminates this risk and allows you to spend your retirement just that way – retired.
• Empowering Your Children’s Dreams: Your children may have their own passions. Selling the business allows them to pursue their goals without the burden of taking over the family enterprise. For example, you are free to invest the proceeds into their business ventures in other markets, pay for their higher education, or subsidize their income as they pursue nonprofit work.
• A Growth Catalyst for the Next Generation: M&A doesn’t necessarily eliminate your children’s involvement. A sale with the right acquirer can fuel the business’s next stage of growth, providing your children the opportunity to lead a thriving company they can build upon.

This is just the first reason to ponder when deciding to sell your lower middle market company. In the coming blogs, we’ll explore other common hesitations and the questions that will illuminate the best path forward. Align is here to guide you through the entire M&A process, ensuring you find the perfect acquisition partner to secure your financial future and unlock the next chapter for your business.