In a previous article, I discussed non-compete agreements, which are part of every sale. They’re the clause that prohibits the seller from starting up or taking over a business that would compete with the new buyer. The term is usually 3 – 5 years and will include a specific geographic limit, say 50 – 100 miles.
The business owner is usually ready to exit the business (and perhaps the industry), so signing on is rarely a problem. But things can get complicated when family members are employed by the business.
It’s one of the questions I always ask, and in my experience, almost every HVAC company employs at least one family member. A spouse keeping the books, a son or daughter in the field or in sales, or another in a key position such as lead technician. Family employees add complexity to every sale because they often draw salaries or get perks that are not standard or available to other employees.
Also, because… they’re family.
As a broker, I know that having even one close family member in the business increases the risk for a buyer. No matter how well the business is run after the sale, it always transitions from a family business to a company run by other people. It feels different, and family members are very likely to move on to other positions after a company is sold.
In some cases, they’ve got enough experience to start a company of their own, and that’s why many buyers require non-compete agreements from family members as well. Especially if they’re serving in key positions in sales or technical roles.
This means the owner should get buy-in from every family member in the business before putting the company on the market. It can be a series of difficult and emotional conversations. There may be people who thought they’d have first right of refusal to buy (or thought the company might have been gifted to them or left to them) I’ve had parents tell me that their son or daughter wouldn’t be interested in (or capable of) running the business, only to find that their child felt very differently.
If the owner sells and the key family members sign non-compete agreements, it could dramatically change their employment situation. They may lose perks or have their salaries reduced to normal market levels. Most likely, they’ll be given a formal job description and performance reviews under new management.
Most brokers tell sellers not to communicate with employees about a sale until the transaction closes, but family members are the exception to the advice. They’ll need to know early about the sale and terms that might affect them (like non-competes and normalization of salaries and duties).
The best case scenario is an owner who has notified family members and has a plan and timeline for replacing them if need be. If family employees are willing to stay on after the sale, a buyer will want to have frank and open conversations about how they feel about the sale and how they will aid the transition to new ownership.
If selling your company is something you’re considering in the next few years, take advantage of our complimentary and confidential opinion of value.
