Selling to an Insider

WHEN SELLING OR TRANSITIONING TO AN INSIDER, PRE-SALE PLANNING IS JUST AS VITAL AS IT WOULD BE FOR AN OUTSIDE SALE.

Insider transactions often involve rewarding a long-time and loyal employee, while also extracting value from the business for your own family and retirement at the same time.

In order to ensure a successful transfer you must remember these three primary objectives:

1. Transfer to whom you want
2. Transfer when you want
3. Transfer for the price you need or desire

The most effective way to make this happen is to ease into the transition.

First, have the new owners replace you in the business operations, meaning that you will need to slowly transition out of the leadership position. Next, slowly transfer ownership without losing control. There are a handful of ways to do this, but you should establish objective standards for your potential successor to meet before the ownership is sold. These objectives should consist of receipt of purchase money, release of your personal liability to the business creditors, plans to pay off business debt, etc. From there, with the appropriate amount of time, you should begin transferring a substantial portion of the equity ownership. The final step is to transfer control when, and only when, all of your ownership objectives have been met.

Whether you have a group of individuals who would jump at the chance of buying your business, or you have a key employee in mind for the transfer, the sooner you plan and make decisions, the better.

Leaving the Business to Family?

THOUGH MANY WOULDN’T GUESS IT, THE TRANSITION OF YOUR BUSINESS TO A FAMILY MEMBER CAN BE THE HARDEST TRANSITION TO PULL OFF.

Naturally you would assume that handing off your business to like-minded individuals whom you love, and who love you, would be easier than any other passing of the proverbial torch; however, this is not always the case.

When transitioning your business to your children or other family members, there are a myriad of other factors to consider that exist outside the financial sphere.  With family comes conflict, emotions, and sentiments – on top of everything else you must consider when making the big change into retirement. The unfortunate, but very true reality of the transitioning to a family member is that simple family conflicts have the potential to completely derail the entire process.

It is quite typical for business families to suppress their conflicts in the name of professionalism, which can lead to uncovering some hard feelings from past situations when it’s time for you to make your exit from the company. Any change as large as transitioning has the potential to turn into a power struggle no matter how much your family loves you. The key to smoothing relationships and maintaining transition momentum is the understanding that the problem at hand is unlikely the actual issue, but an old wound reopened.

There really is no perfect formula for timing a transition, or for creating a succession plan. Every business is different, but the key to success in any situation is to accommodate opportunity and manage risk. You simply must understand your own family situation and the business environment around you. No matter what your situation warrants though, it is best to recognize that the sooner you address these issues, the better.

Create A Business that Lasts for Generations

EVERY BUSINESS OWNER KNOWS THAT LONGEVITY, NOT JUST SHORT TERM PROBABILITY, IS THE GOAL OF ANY COMPANY.

In order to ensure this durability, one must be devoted to creating a business that can last for generations.

Business durability and continuity face two key challenges: the loss of an owner and the loss of the company’s key talent.

Would your business be able to survive without either? You may not want to think about it, but it’s an important discussion to have. You, your company, and your family need to be prepared in case of an emergency. To be successful in business, you must have vision and optimism, but unbounded optimism can lead to being an entrepreneur’s Achilles’ heel. Optimism, though usually a good thing, can make owners avoid planning for anything other than an optimistic outcome when left unchecked by realism.

Whether engaging in the rest of the exiting process or not, you must make sure your business can survive your death, disability, or retirement, as well as the loss of its key talent. Without a plan, and without the ability to function without these two pieces, a company cannot expect to last long. Durability only comes with preparedness, and though it may not be a reality you want to face, a company will only last for as long as its values are in place. The only way to ensure successful longevity of happening is to foresee problems and solve them, before they threaten your company.

Jumpstart Growth with Value Catalysts

THE GOAL OF EVERY BUSINESS OWNER IS TO CREATE MORE VALUE IN HIS BUSINESS.

The value of your business is important because it determines not only the quality of your life once you leave your company, but also how long it will take for you to be ready to leave. The sad fact is, too many owners just work in their business instead of on it. When you think of it that way, most small business owners are really just glorified managers. They know how to do their job really well, but they never build a company that can live without them. In essence, they are the company.

Value Catalysts are the structures, people, and processes that help owners work on their business instead of in it. You may recognize these people, structures, or processes also as, ‘value drivers’, or ‘business drivers’, though I find the term too constricting.

Effective VCs are often the difference between true owners, and glorified managers.

Suppose you were to leave for six months, for any reason at all. Ask yourself, would your business be able to survive? If you find yourself hesitating, it is likely that your business does not possess the VCs it needs.

Value Catalysts are not limited to business, and they do not just create more zeroes at the end of a sales price. A Value Catalyst creates more energy, time, or money than it takes in. In chemical reactions, Catalysts spark change. They jumpstart a chain of events, and the same can be said for VCs. Businesses that are in the midst of transition are not the only ones that benefit from value catalysts. All businesses should be created to build value for their owners.

By implementing VCs, you can truly change the direction of your business and the quality of your life.

Begin with the end in mind..

ASK YOURSELF, “WILL I PREPARE MY FAMILY AND BUSINESS FOR THE FUTURE OR WILL I LEAVE IT TO THE WINDS OF FATE?”

Often business owners don’t want to address their exit because it may entail giving up control of a company that they have poured their life into building. However, avoiding the topic of exiting does not change the basic fact that the time to exit will come, and that it is lucrative to have a plan for when it does. The question will never be, ‘Will I exit my business?’ but instead, the question is, ‘When I exit my business, will I do it well?” The sooner this question is raised and the sooner the idea of leaving is accepted, the more successful the outcome can be.

You may be wondering, ‘Where do I begin planning?’ and the answer is simple, begin with the end in mind. By establishing a finish line you are completing a crucial part of the entire exiting process. Identifying your finish line is as easy as answering the following three questions:

1. When do I want to transition out of my business?
2. To whom do I want to sell or leave my business?
3. How much will I need to secure my financial independence?

Instead of fearing the inevitable, take advantage of the knowledge that you will eventually exit your company and work towards it with intention. Ease into your transition by creating a plan that allows you to exit in a way that leaves you fully satisfied in retirement, and with a successful business that continues your legacy. As Yogi Berra once said, “If you don’t know where you are going, you may not get there.”

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Legacy is Not Something to Save for Later

Often we hear of people leaving their legacy on the world, and in their families, but what does that mean?

Leaving a legacy means to hold onto heritage, history, and family identity. What is a simple and ultimately rewarding way to achieve leaving a legacy? Through stewardship.

Stewardship is a word that is somewhat outdated in the modern world but that should be held in high esteem. Stewardship is an ethic that embodies the responsible planning and management of resources. The concepts of stewardship can be applied to the environment and nature, economics, health, property, information, theology, etc.

Wise stewardship is about more than just taking care of your money—it involves many facets of life, such as your talents and time. You are more than your net worth. Most people understand time to be the most valuable commodity. Donate your time and talents to the next generation, as well as the community.

Your abilities and money are gifts that have been given to you for a purpose. Don’t forget to give. On top of benefiting others’ lives, donating brings deeper satisfaction and enjoyment. A family that neglects to steward the hearts and minds of its members fails to build interfamilial relationships. That family will ultimately crumble. Building a legacy of wise decisions and counsel for your family is not something that you can save until later. Relinquishing a portion of your income can teach you and your family valuable lessons in stewardship. Those who make money their sole aim are never good stewards and often fail to leave positive legacies. But if you can give your dollars away freely, you are telling money that it has no power over you!