For many business owners, the business is more than a means to make money—it’s a part of their identity and a link to the past. This can make the idea of leaving it, and committing to the planning required to leave it successfully, very challenging. Consider the story of Tony Charles, a fictional but representative owner who faced and addressed this problem.
A Link to the Past
Tony Charles was approaching 80. He recently lost his wife of 55 years. Though he was still in touch with his children, they lived all over the world. The only things that linked him to his past were his dog Rudy V and his successful business, “Rudy’s Foodies.”
He knew that it was time for him to start winding down his 60-hour weeks, for his sake and his company’s success. But he wasn’t sure he could leave altogether. The work, his business partners, and his employees brought him joy.
During a quarterly meeting, Tony’s trusted business advisors shared that several larger competitors had expressed interest in purchasing his company outright. He understood that selling might make good business sense, but the prospect of losing his last link to the past snapped him to the reality of his situation.
“I know I need to start winding my role down, but I’m not ready to just POOF disappear,” he told his advisors. “I don’t want to be the one holding up more success, but this business is my last daily source of fulfillment . . . other than Rudy V.”
“What should I do?” he asked.
Planning for the Long Goodbye
Over the following months, Tony’s Advisor Team began developing and implementing strategies to allow Tony to say goodbye without leaving entirely. They approached his plans in a three-step process.
Achieve Financial Independence
First, they determined the amount of money he needed to achieve financial independence. They did so by determining how much money Tony had outside his business. They compared that to what he spent on essentials and niceties on average month over month. And though it was a little bit scary for him, Tony and his advisors broached the topic of how much longer he was likely to live.
These data points gave his Advisor Team a strong guidepost for the amount he needed to sell his business for in order to achieve financial independence.
The competitors’ offers would have allowed him to reach this goal, and a professional valuation backed it up.
However, Tony didn’t want to sell to an outsider. He suspected that they wouldn’t keep all of his employees and that they wouldn’t let him ease himself out of the business. So, his Advisor Team moved to the next step.
Staying Involved Without Being Indispensable
Tony wanted to ease his way out of his business. He also determined that he’d prefer to keep the business in the hands of people he knew and trusted. This meant an insider sale. The problem Tony faced was that he was still indispensable—making the biggest, most important decisions—which would make it difficult for the company to function without him.
Tony played a dual role as the face of the company and the operational wiz. At heart, Tony was a work-with-his-hands man, and he had built an exceptional operations team. He knew that one of his operations managers, Betty, had the skill and desire for ownership, based on conversations they’d had over the years.
But Betty had no desire to be the face of the company. And though Tony’s sales team was strong, he didn’t have anyone willing or able to take the business to the next level.
So, Tony and his Advisor Team approached Betty about an opportunity for co-ownership. Over several years, Tony would transfer portions of his ownership to her if she met ambitious, written performance goals. Betty proposed the idea of hiring an outside sales director she knew and trusted who could run the sales side of the business in exchange for a stake in ownership as well.
This would allow Tony to ease himself out of the business and remain capable of acting as a safety net if needed.
The Emeritus Owner
With his next-level managers installed and purchasing shares of ownership, Tony had found balance.
He still worked and offered advice to his managers when asked, but he shaved his responsibilities down noticeably.
His face still appeared on the products, and he occasionally met with longtime business partners, but his sales director did the heavy lifting of closing deals.
And with Betty exceeding her goals, Tony was on the road to achieving financial independence without disappearing from the company completely.
Once Tony transferred his ownership completely to Betty and the sales director, they asked him to act as the president emeritus, which allowed him to stay involved on his terms.
Conclusion
Saying goodbye to your business doesn’t mean you have to leave it entirely all at once. Whether you want to sell and leave or commit to a slower transition, planning is crucial to positioning yourself and your company for success.
We strive to help business owners identify and prioritize their objectives with respect to their businesses, their employees, and their families. If you have questions on this topic, we can help with more information or a referral to another experienced professional. Please feel free to contact us at your convenience.
Imagine a world where your financial advisor, attorney, accountant, insurance specialist, and property/casualty advisor all worked together, like a board of directors on your behalf. This is the type of Collaborative Advisory Team approach we take in our practice. For many driven entrepreneurs, executives, and high-net-worth individuals, a Collaborative Advisory Team of professionals is the most effective and efficient way to achieve your optimal financial world. At Moneta, we’re reinventing the way you experience wealth management.
The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial professional. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial professional. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need.
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Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.
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