This is Part 4 of a Series about planning for succession at the time that you decide to leave your business. Part 1 can be found here, Part 2 can be found here, Part 3 here, and look for part 5 next week!
Just like in the previous posts, Business Owners need to assure that they are meeting their financial goals (the amount of cash that they need to achieve financial independence upon retirement), and values-based goals (such as their legacy, fate of long-term employees, and their community) are met with their Succession Plan. Another way that these goals can be achieved is with a sale to a key group of employees. This group of employees assumes control of the company over a longer time period, allowing the Business Owner flexibility.
As with any Exit Strategy, there are positives and negatives, and in conjunction to your attorney and CPA, we help Business Owners navigate these to assure a smooth transition.
EXTENDED PREPARATION TIME
We want any Business Owner to have the ultimate goal of the business working without them. The founder of ActionCOACH, Brad Sugars, did a great video on this here. With a sale to Key Employees, this is even more crucial. Our clients that have successfully exited the business and sold to employees have started the process 7-10 years before their planned exit. This allows time for the business to be profitable and growing, the Key Employees to fully develop as successful leaders, and for the eventual purchase to be defined and executed.
This extended preparation time is both an advantage and disadvantage. It allows the Business Owner to exit the business slowly as they see fit and in their own time, as opposed to a sale to a third party that the Owner’s exit happens instantly. The disadvantage is that if the owner is ready to retire next year, there likely isn’t enough time to plan, execute, and facilitate the transition.
READY YOUR LEADERS
For all of our clients, priority one for us as coaches is to make sure that all of the leaders are ready to effectively lead. This work with a client in seeing their own opportunities for leadership development, working through strategies to overcome those opportunities, and assuring that the leader’s strengths shine through is all so that the leader is prepared to take on the role and be successful. This process ultimately begins with the Business Owner in a small business, and in particular divisions of a larger company, but as those individuals become stronger as leaders, it’s important to develop the next generation of leaders in your company.
Often, when a Business Owner is considering a sale to Employees, they have not even approached the subject with the employees that he or she is considering for the task. Are they ready to take on the financial responsibilities that an owner must, such as personal guaranties on loans? Are they ready to weather the financial storm of an economic downturn by having no paycheck coming in weekly or monthly? Do they want the responsibility that comes with being a Business Owner rather than just a manager? Have you established a path for the Key Employees to be able to afford the buyout? These are questions that are all crucial. When having this conversation, assure that the Key Employee feels no pressure to own the business if they are not ready. Allow them time to process this decision with their spouse, family, and children.
Aside from the financial implications of leadership, it’s important to ask yourself the question, and answer it honestly, “can my team of employee leaders run the company for a month, 6 months, a year, without me?” If the answer is no, then hiring a coach to develop them as leaders is an immediate need.
When you do make your graceful exit, who is going to be at the helm? Who is going to make the decisions day to day? The Business Owner needs to think about the group of Key Employees who are ready, willing, and able to take on the ownership role, and assign a leader. Even if a company is owned 50/50, there ultimately needs to be one person who takes on the role of CEO. As the current Business Owner, a chain of command is important to establish before you’re gone. Be sure everyone who is going to have ownership in the company embraces the decision. Take a test drive for several months before setting it in stone – it could be the most important decision you may make in this process.
If you have the time and are willing to put in the work to develop your employees into great leaders, a sale to Key Employees is a wonderful way to preserve your legacy, meet financial goals, and to assure a future for your employees. Working with an expert, like a leadership coach, is a perfect way to develop the employees into the future of your company.
Are you ready for your business to work without you? Are you ready to take the leap into planning for your retirement as a business owner? Is your company ready for you to retire? We can help. Schedule your no-cost, no obligation business consultation today.
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