Gil Roberts: Your Kids Don’t Want to Run Your Company? Here’s Your 3-Step Exit Plan.
Published in the North Bay Business Journal, February 13, 2017
In our business, we meet many CEOs who have built family businesses. Often, they have grown their companies over a 20 to 30-year period. Typically, the company owner expects to transition the business to his or her kids. This dream is not only a source of pride and legacy, but also, how they planned to fund their retirement. Over the last year, a common theme has emerged. Unfortunately, these baby boomers, learned their kids either do not want to run the business or do not have the skills to manage the business. I recall the owner of one very successful Bay Area consumer products company saying, “Help me! How do I get out?”
Steps to Avoid this Scenario: To avoid this scenario, owners should take 3 steps.
1. Write down your exit vision and legacy
2. Develop a plan to achieve this vision
3. Transition the business when you achieve your goals
Exit Vision / Define Your Legacy: Achieving the transition or exit you desire, starts with knowing what that will look like. Write down your exit vision now even though you do not plan to leave the business for years and maybe decades. The vision can change over time, but is important to get started. Part of the exit vision is knowing what the legacy is you want to achieve. What is a legacy? Technically, a legacy is something handed down from one generation to another. For example, do you want the business to remain in the family or do you want to sell the business? Because leaving the business to family may not be a viable option, we want you to think of legacy in a larger context. Ask yourself questions like…Do you want the business to remain in its current location? Do you want the workers to stay employed? Do you want to leave money to an institution, perhaps a church or school or local non-profit? Writing down your exit vision and the legacy you want to achieve is critically important for you to achieve your vision.
Develop a Plan: Yogi Berra said, “If you don’t know where you are going, you might wind up someplace else.” While humorous, this is so very true, especially when it comes to transitioning your business. Assess where your business is today and develop a plan to reach your vision. For most companies, this means annually making time to develop a high level 3 to 5-year plan to chart with guideposts where you want to be heading and a more detailed 1-year plan to achieve this years’ goals. If this is new to you, work with trusted advisors to help you chart this path. Trusted advisors, like accountants, lawyers, consultants and wealth managers who help companies grow every day can help you build these plans.
One business owner surprised me when we started talking about vision and legacy. This business owner said that when they sold the business they planned to give each member of the leadership team about $4M. Wow! I asked what the leadership team thought about this. The owner said that he had not told them yet.
Sharing your vision and your plan with your family and/or leadership team is important. If you are planning to transition the business to family (or employees), you need to have open and honest communications regarding this transition to ensure everyone is on the same page. Consider allowing family members to participate in the planning process to build buy in and commitment. Learning too late that your kids do not want to run the business when you are ready to retire should not happen (though it still could) if you are having open honest communications along the way.
Transition the Business: Transitioning the business is the last stage of the plan you have created. This plan has been developed preferably years in advance. Once you achieve the plan goals you are ready to start the transition. For most business owners this means transitioning the business to family (or employees) or selling the business. If you are transitioning the business you have worked with trusted advisors to prepare the steps to legally shift the management over time to your family or employees. If you are selling the business, you are engaging your investment bankers or brokers to start the selling process.
In Summary – Be Prepared: Finding out that your kids do not want to run the business when you are ready to retire should not happen if you have laid out in advance your exit vision and legacy and built a plan to achieve this vision. Tracking your plan progress and having open and honest communication of your vision and legacy with your family, leadership team and trusted advisors along your business journey will keep everyone on the same page and dramatically increase your chances of a successful transition.
Gil Roberts, a Partner with Assay Advisory, was most recently the CEO for an international consumer products company in the Bay Area. Assay Advisory helps owners of privately held businesses increase their equity value before a sale. Contact him at 415-906-6070, X255 or firstname.lastname@example.org.
Nigel Hartley is a Business Advisor with the Shirlaws Group where we help businesses “Grow, Fund, Exit. www.shirlawsgroup.com. You can contact Nigel on 707 573 7154 or by email at email@example.com.