The Importance of Legacy in Business Sales: Aligning Values for a Successful Transition

Introduction

When it comes to selling a business, the numbers on the balance sheet are not the only factors that matter. Beyond financial considerations, the legacy of the company plays a crucial role in the decision-making process of both the seller and potential buyers. Legacy encompasses the values, culture, and history that have shaped the business over the years, and its preservation can significantly influence the outcome of a sale. In this article, we will explore the importance of legacy in business sales, from maintaining employee welfare and customer trust to supporting the local community and honoring family traditions. We will also delve into the emotional dimensions of exit planning and provide strategies for highlighting your business's legacy as a key selling point.

Stakeholders

When selling a business, legacy can be crucial in choosing a buyer. While financial considerations are important, preserving the company’s legacy often influences the owner's decision. In his book, “Good to Great”, Jim Collins emphasizes aligning activities with core values, mission, and vision, which is also vital when selecting an external buyer. Ideally, you want buyers to align with you in these areas.

Owners may prefer buyers who share their entrepreneurial zeal. Employee welfare is a significant concern, as owners want to ensure their staff's well-being post-transaction. Customers and clients trust and loyalty, built over years, could be jeopardized by new owners who disregard the business's legacy. Trust and loyalty are built up over many years or decades, but can be destroyed quickly with the wrong acquirer.

The local community benefits from the business through employment and economic stimulation. For example, relocating the business can negatively impact the community through job losses and loss in prestige. Branding and trademarks are also critical for consumer recognition, and drastic changes post-transition can harm the company's perception with stakeholders.

Business transitions also affect immediate family and future generations, especially those involved in family-owned businesses. The identity of the owner and their family is often intertwined with the business, making the preservation of legacy important. Handing the business off to the right buyer who respects the family legacy can often be more important than just dollars and cents.

Exit Planning Perspective

The transition of a business often carries significant emotional and personal connections for the owner. In the realm of exit planning, it is crucial to consider these aspects when assessing the personal readiness of an individual owner. Emotional attachment holds substantial importance due to the numerous stakeholders involved beyond immediate family members. Comprehensive exit planning must incorporate the owner's emotional considerations, as they play a pivotal role in defining what constitutes a "successful exit."

Addressing the emotional aspects of a business sale forms an integral part of the exit planning process. Qualitative factors, such as those mentioned earlier, can often hold equal or greater weight compared to strictly financial considerations. The exit planner assists the owner in identifying and documenting key qualitative factors that are significant to them. This process enables the owner to evaluate prospective bidders based on non-financial criteria more effectively. Neglecting these emotional factors can lead to pre-sale anxiety or post-sale regret.

One effective strategy for owners is to highlight the legacy of the business as a key selling point. Buyers often value businesses with a long-standing history, which typically indicates customer loyalty, a resilient business model, and brand recognition that can be leveraged post-acquisition. In scenarios involving multiple bidders, emphasizing the business's legacy can serve as a compelling selling point. It is important to note that while buyers conduct due diligence on your company, you also have the opportunity to perform due diligence on potential buyers to ensure a good fit.

When selling your business, creating a Confidential Information Memorandum (CIM) is essential, as it provides potential buyers with crucial information. The CIM narrates the story of your company. Given that legacy is intrinsically linked to your company's story, the CIM should include elements of the business's legacy, highlighting it as a primary selling point. Utilize the CIM to craft an appealing narrative for investors. Legacy has driven your past successes, and it should also be an attractive prospect for new owners to capitalize on from a business perspective.

Summary

As noted, various qualitative factors need to be considered when transitioning a business. This highlights the importance of maintaining trust and loyalty with customers, the impact on the local community, and the risks associated with changing branding and trademarks. The emotional connection between the business owner and their business, including the effect on family members, is also emphasized. The exit planning process should address these emotional factors to ensure a successful transition. Business legacy can be a key selling point, and documenting this legacy in a Confidential Information Memorandum can attract potential buyers while also helping you maximizing business value