You spend 20 years growing your business. It works. You grow, you’re profitable, people want to be associated with you and your brand is known and respected in the market. Now what? Problem here is, if you get burned out, you don’t have too many options. It’s not like having a mid-life (or quarter-life) crisis and giving it all up to backpack the Alps is in the cards because more than likely if you leave, the business dies.

What to do? Well, there are two options. First, selling the business outright. Second, business succession planning which may include a sale. What’s the difference? Basically, the first option is geared toward a quick strike…but as we know from years of watching ER, it’s not always good to pull the knife out of the patient. If the owner sells and leaves quickly, the business may die.

In cases like this…where the owner’s charisma and presence make the business what it is and contribute significantly to its ongoing success…the answer is clear: business succession planning. Key questions here:

-Who has the technical ability to take over?

-Who has the charisma to develop and market the business?

-How should these folks be paid?

-What role will the owner take on as he/she transitions out of the business?

-How can the goodwill of the business remain intact through the transition?

These are key questions, and once answered must be thought of in a larger context of being tax-wise and business savvy.

Related posts:

1. Chicago Business Succession Planning: More than a Quick Sale

There are plenty of great business brokers who can list a business for sale, help to spruce it up, and offload it in a quickie transaction. In most cases, though, this is either not possible or not the best way to wring the most out of the owner’s life’s work. Why not?

First, there is something of an unknown for a buyer in purchasing a business, and as a result, the business owner will have to take a haircut from a risk discount perspective (“He knows how to run the business, but I might fall flat on my face.”) Another consideration: goodwill…that intangible feel good stuff like brand loyalty, marketing presence and personal relationships that gives a business extra value. If the owner leaves, he very well might take all of that goodwill with him down to Florida.

So in most cases, what’s the best way to get as much as possible from an ownership transition? Business Succession Planning.

Business succession planning is a buzzword gaining more and more notoriety nowadays…what is it? In metaphorical terms, it is the process of the owner gradually wriggling her way out of the business as opposed to a sale, which is more akin being shot out of a cannon.

Business succession planning is a process first and foremost. The business owner takes a long, hard look at his business and all of the moving pieces. He identifies his goals with respect to retirement and unwinding from the business. He determines how best to achieve those goals. With the help of attorneys, accountants and consultants the business owner determines the best plan for unwinding from the business while leaving it as a going concern.

Here’s an example:

John Doe (real creative name, I know) has spent the last 35 years building his local health club business. He has three gyms in the same metro area, all of which are financially healthy. John wants to unwind from the business, but wants to stay involved in some small manner at his leisure. If John sells outright, he’ll probably leave money on the table and won’t have a role in the future of the business. John also wants to keep the business in his family and pass it down to his two sons who have no business sense, but have helped him run the health clubs for the last 15 years.

In terms of succession planning, we might offer some of the following suggestions to John:

1. First, John needs to identify the next leader. It might be John’s sons, or just one of them. It may also be someone else that works for the business. Perhaps an outsider needs to be brought in. This should be a person that can run the business on a day-to-day basis when John is swimming with the Dolphins in Florida.
2. Next, John needs to arrange a compensation/ownership package that will incentivize the next leader or heir apparent to stay loyal to the business and put the needed time and effort into it.
3. John needs to scope out his role in the business, and how he plans to disengage. Will he be a consultant? A macro “80,000 feet” leader?
4. John needs to execute this plan by coordinating business and estate planning issues so that everything fits together as it should.

Business succession planning is a process that requires time, money and attention. But a lifetime of building and growing a business deserves that at least.

Related posts:

1. Planning Business Succession and (hopefully) Retirement