(Editor’s note: This article originally appeared on Bizjournals.com, whose parent company, American City Business Journals, is the largest publisher of metropolitan business newsweeklies in the United States, with 43 business publications across the country.)
Dancing the last dance, reaching the finish line, kicking the bucket, pushing up daisies …
We don’t like to use the D-word. We don’t even like to think about it, so we defer planning for it. After all, each of us has a belief that we’ll live to be 120, then pass on blissfully in our sleep with the birds and angels singing, while friends and family praise our great works.
And there’s a chance it could work out that way. But many times we wait too long to plan for the inevitable. Many business owners who run their company with great foresight and planning, surprisingly fail to plan for the thing that could impact their business most, their own death.
Careful planning is necessary
Without proper succession and business planning, the unexpected death of a business owner can leave the company in a precarious state. If something happens to you today, who will run the company tomorrow? How much will your estate taxes be, and have you set aside sufficient funds?
If your shares are willed to your spouse or children, are they willing to stay on and run the company? Or will they want to sell? If you have a partner, will his or her interests conflict with those of your heirs? These questions, and many others, deserve your careful thought and consideration. Ultimately you should have a well-defined succession plan in place that you share with family members, partners and possibly key employees.
Considering a sale
The best plan for you might be to sell your company and agree to stay on and run it for a set number of years. This allows you to take a significant amount of cash off the table, meet the needs of your estate, and protect your family and your personal retirement.
By selling all of your company early and agreeing to stay on and work for another five years or so, you can put your exit strategy in place while you are still on top of your game.
If you wish, you also could retain an equity stake in the company. And at the end of the five years you would have a second opportunity to sell your remaining stake. It’s really the best of all worlds. You would continue to run the business using other people’s money, and in five years you could sell your remaining stake for what would likely be a lot more cash than the initial deal.
But you need to be proactive. Because the sale of a business in today’s market can easily take nine months or more, you would need to plan a minimum of six years in advance before you even consider full or partial retirement.
If this scenario isn’t part of your planning, you could be setting your company up for a difficult situation. An experienced and capable investment banker can offer you options on how to position your business, prepare it for sale, and maximize your return in both the short and long term, well before you “get your wings.”
About the Author
David J. Mahmood
Founder and Chairman
Phone: (214) 217-7750