Every business owner has to face the facts eventually: they won’t be around to run the business forever. Eventually, you’ll want to retire and enjoy the rest of your life without the constant worry and stress about the business inherent to every entrepreneur. But that bridge can be hard to cross–not only is it emotionally difficult to process moving on from something you’ve spent so much time and effort building, but the logistics of figuring out your succession plans can be overwhelming, especially if you have no clue where to start.
If you’re just beginning to think about your succession plan, here are some common questions about the process along with some best practices to help set you and the next generation of business owners and operators on the path to continued success:
Where to go?
The question of “where to go” has far less to do with you (you’ll be retiring; you can do whatever you want!) and everything to do with your business: without the inspiring entrepreneur at the helm, where (and to whom) does the business ownership go in order to remain successful and profitable? The two most common options are a family/employee buyout or a sale to a strategic buyer, and each come with their own advantages and disadvantages.
For entrepreneurs looking to further cement their legacy, an employee or family member buyout may be the best option. This allows you to select a family member, business partner, or trusted employee to buy you out of the company and take ownership and leadership themselves. This route can help preserve the values upon which the company was built, but can also come with the potentially fraught emotional disputes that arise when working with people you care about.
For business owners looking to get the most value out of the company they’ve built, finding a strategic buyer may be the way to go. This involves merging your company with a competitor or using a broker or investment firm to solicit bids from interested 3rd parties. This route will often get you the most money out of a sale, but comes at the expense of selling to parties you may not know or fully trust, which can be especially risky if the sale is set up to pay out over time or from future profits.
When to go?
The decision of when to initiate your succession plan can be one of the most emotionally difficult to process. After all, retiring requires you to have a lot of trust that your successor will carry out their duties to the best of their abilities and live up to the legacy you’ve created. And if you’re retiring due to health scare, family pressure, or concerns about your own acumen, retirement can feel like an admission of personal failure more than the celebration of your success that it really, truly should be.
There are also practical concerns about succession timing: Is the broader economic climate going to work to your advantage to bring you the most money and give your company the largest chance of continued success? Or are they limiting your potential buyer pool or introducing extra risk into an already volatile transitional period? Can you (physically, emotionally, financially) afford to continue working until a better time, or will there even be a better time? These questions (and many others) are the ones that can keep you up at night, which is why it’s important to have professional help getting the best answers.
How to get there?
Of course, once you’ve made the decision to move on from your company, decided who will succeed you, and worked out when the best time to transition will be, you’ll realize that you’re just now getting to the real nuts and bolts of your succession plan. Detailing day-to-day transition plans, negotiating sale contracts, and litigating or mediating inevitable disputes can be a massive headache, but are part-and-parcel of the transition process.
You may not be able to avoid those difficult succession details altogether, but with a strong legal team in your corner, you can at least sleep soundly knowing that they’re being handled with care and professionalism. For all your succession planning needs, Schindel Segal Mendoza is here to help. Whether you’re just starting to consider your retirement or need help finalizing all the tricky details, contact Schindel Segal Mendoza at 952-358-7400 or by emailing info@ssm-lawfirm.com.
