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When to sell your family business

By Peter Ouma Muga | April 18th 2018

Family-owned enterprises are those where one family owns 50 per cent-plus of the business.

This type of ownership structure accounts for upwards of 80 per cent of companies worldwide, which makes family-owned businesses essential to a country’s economy.

From time to time, though, we’ll hear of these family-owned businesses changing hands.

While there are those who’ll pass on congratulations, there are others who’ll think the ‘family tradition is lost’.

Most recently, we’ve seen regional retail giant Nakumatt Holdings, run by the Atul Shah family, and Makini Schools, run by the Pius Okelo family, hand over the reins to their businesses for different reasons.

A family-owned business, or any other business for that matter, can only be sustainable if its assets are used in a manner that’s productive, and returns value and satisfaction to the various stakeholders and the family. 

The moment this stops being achieved, the family should consider selling the business to others who could do a better job with it, allowing the family to focus on other activities.

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The game changer, however, is in the timing of the decision to sell.

To receive a good price, the best time to sell a business is when a buyer is ready to buy it, not when the owners are ready to sell it.

Makini, unlike Nakumatt, falls in the former situation.

Founded in 1978 by Dr Mary Okelo and her late husband Dr Pius Okelo, the family-owned Makini School has eight schools on four campuses in Nairobi and Kisumu, with 3,200 students from kindergarten to Grade 12. 

Well-known in the region for its academic performance, the school recently changed hands for an undisclosed amount.

Speculation, however, suggests a 10-figure sum may have tipped the sale to the partnership of ADvTECH Ltd and Scholé Ltd.

ADvTECH Group, Africa’s largest private investor in education, with 100 schools and colleges in South Africa and Botswana, is listed on the Johannesburg Stock Exchange. Scholé has been operating in Africa since 2012, with schools in Zambia and Uganda.

Families that grow their business to a sellable size should cash in at the right time for the following two reasons. 

Lesson #1

While all businesses have a lifecycle, a business that’s competitive at one stage of an industry could need a vastly different scale in management style and skill, technology and capital to compete well in another stage of the ‘game’.

If a family wants to remain in a particular business, or game, over several decades, it needs to have the necessary talent, adequate financial resources and a certain measure of flexibility. When the business stops adapting to its industry, it dies.

Lesson #2

Families naturally change over decades and generations in terms of their skills and interests. And while the founder has the passion and skill required at the start, this may not be the case with the next generation.

Besides, some families grow apart from their businesses and become unable or unwilling to support the enterprise as owners or business leaders.

Some people see this as a family ‘sin’, but it isn’t.

The sin is when family members become lazy, unproductive and completely reliant on others for their financial support.

The worst situation is to build something valuable and watch its value vaporise because the next generation is unable to sustain its growth.

And remember, even if the family is no longer a good fit with the business, it could still be successful in other activities, including a different business. 

Numerous studies have found that families that sell their businesses often start or buy another business and get back into another game. And as Kenyan family-owned enterprises become more attractive, this scene should get more interesting.

The writer is a consultant at the Institute for Family Business (IFFB).

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