Lessons Learned from Selling the Family Business
I don’t meet many candy entrepreneurs. But I’m thankful for my grandfather who left a farm and became a candy entrepreneur in 1906 when he started Brock Candy Company. Eighty-seven years later, my brothers and I made the difficult decision to sell it. The process of selling the family business was its own learning experience. If you own a privately held family business, here are two pieces of advice I have for you.
1. Timing. There is a season for everything, including the family business. Statistics show 60% of businesses survive from the first generation to the second generation. However, less than 5% survive to the third generation. It’s very hard to pass a business down to children and grandchildren for a variety of reasons, including children’s interest, ability, and substantial ownership. When an opportunity arises to sell the family business, good stewardship requires you to seriously consider it.
For those family businesses that do survive, many are small businesses that are difficult to sell because the business becomes so closely identified with the family that potential buyers become concerned that the business won’t grow apart from the family’s continued involvement.
You want to sell when things are going well. You don’t want to sell while the business is under duress. We sold Brock Candy during a time when the business was healthy. If you are approached by a potential buyer during a healthy season of business, you need to take the offer seriously.
You have to consider the next generation and whether they are capable or called to run the business. The next generation may not have the appetite or aptitude to run the business. You don’t want to put them in a position to fail. You need to have honest conversations with them to gauge their interest and ability. If some family members desire to keep the business and others want to sell, it is often the case that the remaining family must assume the added risk of leveraging the company to be able to buy out other family members.
We sold Brock Candy because the timing was right. Because of the market and the health of the business, we were in a position to receive a very competitive offer. We realized the wisest decision was to sell though our lives had been so defined by it.
2. Planning. Though the timing was right to sell, I wish I had been better prepared for the moment. Thankfully, I received some sound advice that put me on the right track. Around the time the business was being purchased, I had a providential encounter with Ray Lynne, an estate planning consultant who worked closely with the PCA Foundation among other charitable trusts.
Ray advised me to consider investing the proceeds from the sale into a charitable remainder trust. In hindsight, it was the best financial decision I ever made. It is a way to receive a tax deduction and draw annual income while also planning a future gift to your favorite charities. The trust also protects my estate from creditors and predators. Whenever the Lord calls me home, 100% of the trust will go to charity. In the meantime, I am able to draw income from the trust annually which usually is 4-6% of its value.
I wanted to invest in Covenant College, whose essential work I strongly support, and I wanted to leave the government as little money as possible. The charitable remainder trust helped me reach my goal.
I left the family business nine years before we sold the family business. Sixteen years after selling the family business, I retired from Covenant College. My wife Dottie and I had to imagine a new future for ourselves. Today, we keep ourselves busy with Brow Wood, a planned community on Lookout Mountain we’ve helped to develop. We started Brow Wood after realizing the mountain community lacked a neighborhood for active retirees where there was no entry fee and you could own your own home, but where assisted living was available for those who needed it. Brow Wood is a small community that consists of individually owned cottages and homes, monthly rental independent living, and a small family-like assisted living facility with memory care.
We started a neighborhood because we wanted to create something that would have a practical and lasting value in people’s lives. Like my grandfather, I have an entrepreneurial spirit but it’s not for candy. It’s for places that bring people together. Our hope is that like my grandfather, we have started something whose benefit will continue to be experienced for generations to come.
A note to business owners from the PCA Foundation:
Christian owners of businesses who are considering a sale can achieve even greater income, greater tax savings, and greater Kingdom giving by donating stock before entering the binding sale agreement instead of contributing cash proceeds after the sale. Giving an appreciated asset before a binding sale agreement effectively doubles the charitable deduction for the amount of the appreciation: avoiding capital gains tax on the appreciation, plus deducting the amount of the appreciation.
For more information about business interest gifts, charitable remainder trusts, or other more complex gift strategies, visit the PCA Foundation website at www.pcafoundation.com, or contact Tim Townsend or Greg Mattox.