Business Owners Care About Their Legacy

A legacy is the long-lasting impact of a person’s life that may ‘echo in eternity’ (to quote Maximus in ‘Gladiator’). Legacies may come about from a financial legacy, or the passing on of financial assets to one’s designated beneficiaries. Those seeking financial legacy planning should consult with their appropriate advisors in order to address the financial, legal, and tax implications associated with setting up a sound estate plan. Legacies may also come about from passing on ethics and integrity to future generations. Business owners may preserve their financial legacy by selling their business to ensure the financial security of their intended beneficiaries, and may preserve the legacy of the business itself by ensuring it is sold to a party aligned with their own ethics and values. Key strategies for legacy preservation include defining and documenting legacy goals, selecting the right strategic buyer to carry on the legacy, and ensuring a smooth transition to the buyer by empowering employees and management to preserve the company’s culture and operational excellence.

Business Sales Impact Community

When disposing of a business in order to preserve one’s financial legacy, it is impossible for many business owners to avoid thinking about how the business sale will impact their employees, customers, and general community. Particularly for larger and well established businesses, a sale can cause anxiety and disruption to the lives of many used to doing business and interacting with the same ownership group. Many business owners with roots in the community care about preserving the reputation of their family name for the benefit of their children and grandchildren. It is thus important for these business owners that the buyer continues to run the business responsibly in a similar manner as themselves. This includes safeguarding employees’ jobs, treating customers with respect, and always conducting business in an honest and ethical manner.

Maximize Purchase Price

The community impact on business sales must be tempered with the reality that the number one priority of business owners when selling is maximizing their purchase price with the most favorable deal terms. Qualified buyers with the sufficient funds should not be excluded as acceptable buyers by the seller without first having the chance to meet and discuss how exactly they intend to run the business. Otherwise, the business owner may face an illiquid market for the sale of their business, where an insufficient amount of potential buyers are able to price and bid on the business. A professional business broker should always encourage and facilitate offers from as many financially qualified buyers as possible. This way the business sale will not be constrained to a select group of buyers which will depress the purchase price.

Type of Buyer Important to Preserving Legacy

Business owners wishing to sell their business to a buyer that preserves the values and integrity of their business should avoid buyers who do not put their own ‘skin in the game’ when purchasing the business. Specifically, this means avoiding buyers who are not willing to spend their own capital or put up their own collateral to secure external lending. Some buyers expect the seller to incur most or all of the financial risk via seller-financing with little or nothing down. Other buyers not willing to put up their own capital may ask the seller to take an ‘earn-out’ (or contingency-based payments after the closing) in lieu of cash down. Without having the necessary ‘skin in the game’ or risk to their own capital, buyers are less likely to make good on the actual purchase and are even less likely to act as a long term owner with respect to the community.

Will A Buyer Preserve Legacy of Business?

The discovery of whether a potential buyer will be a good steward of the ethics, values, and responsibilities embedded in a seller’s business should take place with direct dialogue between the buyer and seller.
A business broker should facilitate direct dialogue so the seller can get to know the buyer and clearly understand the buyer’s background, goals, and motivations behind buying the business.
One question to ask a potential buyer is how exactly they intend to operate the business.
Is the buyer intending to be ‘hands on’ and have direct day to day involvement?
Some business owners may feel that their business is not suited for an absentee-owner, and may suffer as a result.
A second question to ask a potential buyer is how long they intend to own the business.
Flipping the business or otherwise intending to quickly re-sell the business (after cutting costs) to another party may be a red flag about whether the buyer intends to retain employees and maintain the same level of customer service.
A final question to ask a potential buyer is what changes (if any) to the business operations they intend to make after the sale.
The potential buyer should hopefully be up front about any intended changes which may inadvertently disrupt the lives of employees, customers, or the community at large.
Some business owners may fear that private equity groups (which use investor capital for acquisitions) will re-sell the business or change the business operations in a way that negatively impacts their legacy.
In such cases, it is best to seek references of sellers from other acquired businesses and get their opinion of the private equity group.

The sale of a business may preserve both the financial legacy of the business owner and the legacy of the business itself in the community. No responsible business owner wants the legacy of their business to be tarnished by a buyer who unreasonable fires employees, saddles the company with debt, or no longer provides good service to customers. Finding a buyer who will be a good steward of a business along with maximizing the purchase price and deal terms is the role of a professional business broker.

Give Martin at Five Star Business Brokers of Palm Beach County a call today at 561-827-1181 for a FREE evaluation of your business.