Perspectives · Volume I · 03
Succession in Owner-Operated Businesses
Owner-operated businesses transfer on a personal clock. Price is one term among several, and often it is not the one that decides.
Written for owners and families weighing a transfer.
The clock is not financial
An owner in their sixties running a business they started is holding an asset that represents most of their wealth, their working life, and their standing in a town where people know what they built. The decision to transfer it is taken under conditions that have very little to do with the multiple environment.
Health decides it. A spouse decides it. A child who was going to take it over says they are not going to take it over. A second-generation family with four shareholders and two of them working in the business reaches the point where the arrangement stops functioning.
These are not events an owner announces. They are events an owner mentions, once, to someone already in the conversation.
What the seller is deciding
Price is a term. Alongside it sit the name over the door, the people who have worked there for twenty years, whether the site stays open, what the owner does on the Monday after close, and whether they are asked to stay for three years or three months.
Buyers who treat those as soft terms lose transactions to buyers who treat them as terms. This happens often enough that it is a pattern rather than an anecdote, and it is the most common reason a top bid does not close a founder-owned business.
A seller in this position is also making a judgement about the buyer as a person, on limited evidence, under time pressure. Familiarity is worth real money to them, and they will pay for it out of headline value without describing it that way.
The window
There is a period — commonly a year to three years — in which an owner has begun to think about transferring and has not yet retained anyone. In that period they will talk. They are gathering information, and no adviser has told them yet what a conversation costs.
Once an adviser is retained, the terms harden and the channel closes. That is the adviser doing their job correctly: the seller is now represented, the asset is being taken to a market, and access runs through a process designed to produce competition.
The window is the only moment when a seller is both willing and unrepresented. It opens quietly and it does not reopen.
What that asks of the firm acting
Acting for a succession seller is a matter of being present before the decision and being trusted at the moment it is made. Neither is achieved by a process, and neither is achieved quickly.
It also requires a willingness to spend two years on a conversation that ends with the owner handing the business to a nephew. That outcome is common, and a firm that resents it is a firm that pushes, which is the one behaviour that closes the window early.
The work sits in the year before the owner tells anyone.