Releasing Your Business’s Reins Can Be a Challenge
Planning ahead for both the practical and emotional demands can help support a smooth, successful transition.
You’ve spent years building and nurturing your business. You’ve seen firsthand how hard work pays off. And it was worth it. The same can be said for when you’re ready to let someone else take over. The work you put in up front makes it that much easier to hand over the keys when you’re ready.
Many business owners don’t take the time to develop a succession strategy for when they want to – or need to – leave the business. But the time to think about succession – whether you decide to sell or bequeath the business – is while you’re still in good health and the business is strong. That way you’ll be in a good place to negotiate and won’t be forced to make decisions under difficult circumstances. Planning ahead can create a stability that helps the business thrive before, during and after the transition.
Pre-transition questions to consider:
- What amount will give you financial independence – now and when fully retired? Your financial advisor can help you project how much income you can expect after a sale.
- Who will you sell to? A key employee group, family or third party?
- What are the tax implications of a sale or transfer?
- When do you want to transition out or step back? New owners might want you to stick around for a set period of time to protect their investment and ensure a smooth leadership transition. This is a key part of business continuity planning and should include a contingency/catastrophe plan.
The transition stage is the doozy. Not only are you attached to a business that you’ve nurtured from idea to startup to maturity, you’ve likely got your own identity wrapped up into your role as business owner, emotionally connected to its history of growth and success.
Make no mistake, the transition can be bittersweet – a mix of loss, relief, exhaustion and, eventually, elation. You’ll have gone from the heady days of hope and hard work, through the slog of growth and daily operations, and now you are thinking about giving up control. This is the time when you need to redefine your role, whether to remain tangentially a part of the business or fully hand over the reins to someone else.
Like with any retirement, redefining yourself can be harder than you think without the construct of your professional identity. Without the responsibilities that dominated your time, you may feel untethered, which can cause a different type of stress. What does the next “act” look like for you? Hobbies, travel, family, a new business? Think it through to avoid future regrets.
That burst of joy, that feeling of dreams coming true, may spring up at the first sign of an interested buyer and a large financial gain, or the first time you see your successor handle a difficult negotiation and you can see a new chapter unfold for both of you.
The other side of the coin is a feeling of “Is that all?” Once a sale is final, a feeling of boredom may set in. It may be difficult to get energized about something else compared to the go-go days of starting a business. Like with any major shift, finding a new normal takes time. You may be inspired to start another venture or you may feel deflated. Every retiree will face this in one form or another; it’s a process to come to terms with a new pace of life. But don’t worry, you’ll get there.
Business succession is complex, but you and your advisor can tap into strategies to help refine your plan. Options include specialized trusts (e.g., revocable living trusts, intentionally defective grantor trusts, grantor retained annuity trusts) and self-canceling installment notes and intra-family loans.
Some assets will require more legal footwork to handle properly during the legacy planning process, such as real estate, intellectual property, and certain types of stock, business partnerships and promissory notes. And your advisor can help you understand the advantages and considerations of each.
Together, you’ll also want to think through how to provide an inheritance for a child who is unwilling or unable to be active in the business, as well as your plans should you have to leave the business before you’re ready (e.g., disability, divorce, distress or disagreement).
A marathon, not a sprint
Launching, running and saying goodbye to a private business is not for the faint-hearted, but the rewards can make it all worthwhile. Expert guidance can help you make objective decisions even when riding the emotional highs and lows that come with being a business owner. Even better, that guidance will help you see – clearly – what’s next for you.
Sources: HBR.org; columbusceo.com; due.com; foundr.com; yourstory.com; exitplanning.com; sba.gov