When Mr Rolls met Mr Royce in Manchester in 1904 and agreed to go into business together, they decided to use both their surnames in the name of their company, Rolls-Royce. Using their names in their business clearly proved a genius step for Mr Rolls and Mr Royce, just as it did for Walt Disney, Henry Ford, Ben Cohen and Jerry Greenfield (AKA Ben & Jerry’s). But what happens when you decide to exit your business? Does having a family name splashed across your business affect its value and how potential buyers perceive it?
Read on to investigate the value of a business name, the implications of leaving your family name behind when exiting your business, and whether a name or face can influence business profitability.
The value of a business name
When you started your business, you were focused on how to get going and make it a success. Unless you’re one of a minority of exceptionally strategic thinkers, you probably didn’t name your business with a view to selling it 25 years later.
In the case of one-person businesses, which most start-ups are, your business is your pride and joy. It naturally takes on your characteristics and personality. It’s you and your work that create connections and build trust with customers. So surely it makes sense to use your family name to help build that reputation. We see it frequently with professional trades, for example, Jones Carpentry.
If you’ve spent years building a professional reputation working for someone else, your name might already be associated with credibility, know-how and trust. In which case it might make sense to trade under your own name when you start your own business. In a similar vein, rare family names can become synonymous with business success. However, as your business grows, that’s when problems may arise.
Downsides of selling a family name when exiting your business
Risk of tarnishing your family name
How do you think you’d react if the new owner behaved in a way that tarnished your family name? What if you discover they are associated with fraud, shady business dealings or other crimes? The reputational impact could be severe. People have long memories and will make associations between company and family long after you’ve parted ways.
While not a business sale, the Lance Armstrong Foundation changed its name in 2012 after the doping scandals associated with their founder. They are now the Livestrong Foundation. Following a recently aired documentary alleging inappropriate behaviour inside Abercrombie & Fitch, it wouldn’t be surprising to see a name change there in the near future.
Bear in mind that generations of your family will continue to be tied to the business by name after your exit. If you allow your name to be taken forward by the new owner as part of the sale, your children and grandchildren will still be connected. When planning your business exit, think carefully about the implications of someone else trading on your family name. It could be years before that connection is lost.
The emotion of selling a business in your name
Your business is your livelihood. Many business owners fail to consider the emotional attachment they have to their company as they plan their exit. If you are attached by name and person the bond is often harder to break. How will you feel when your name goes up for sale? Will you allow your name to be taken forward by the new owner or ask for it to be changed? Which brings us on to…
The cost of re-branding
Changing the name of a business is a costly and time-consuming exercise. Should you request that your family name be removed as part of the sale, a potential buyer is within their right to reduce their valuation to take into account the cost of re-branding. This will have a direct impact on the profit you can achieve from the sale and may affect whether or not you can afford to sell.
Does removing the owner’s name de-value a business?
The way we see it, a profitable business is a profitable business. Removing the previous owner’s name should not affect the value of a business.
Would Google be less popular, profitable or valuable if its founders, Larry Page and Sergey Brin, had put their names to it? We doubt it. But let’s take a second to imagine a world where we all search for answers by ‘Page & Brin-ing’ rather than Googling!
A business trades on its name and the goodwill associated with this. There is a possibility that, without your name, that goodwill could disappear. They key is to build a team around you who will carry on the legacy you’ve built, name or no name. This is somewhat easier if family are involved. Passing the baton to people you know and trust who share your family name is not as emotional as selling to a stranger.
What’s clear is, if your business carries your name or any aspect of your personal profile, you need to consider this in advance of a business sale and build it into your exit planning. You might even decide to re-name the business in preparation for a sale 5 or 10 years down the line. If you have reservations about selling on the family name, it’s much easier to instigate the change whilst you are still in charge and it can be as simple as Price Waterhouse Cooper becoming PWC, or Glaxo SmithKline becoming GSK. Subtle changes like those retain a familiarity for current clients yet begin the distancing from an original family name.
If a name change is part of your exit strategy, or you want to explore the implications of selling a family business, book a free discovery call to find out how we can help prepare your business exit.