When planning for your eventual business exit, achieving financial security is the most important goal. But what happens when the emotional side of planning an exit—namely, ensuring your legacy—conflicts with that most important goal?
Let’s look at a fictional but representative story of how one business owner threaded the needle between logic and legacy for planning her exit.
I Didn’t Think It’d Be This Hard
Kelsey Bose had a reputation as a stoic, calculating business owner. Her competitors feared her, and her employees loved and respected her. She always seemed to make the right decision to help the business grow without hurting her employees. And when those decisions paid off, her employees reaped the rewards.
But as she met with her Advisor Team to discuss her plans for her retirement, Kelsey’s calm façade melted away, revealing an internal conflict about the end of her ownership journey that kept her up at night.
“I want so badly to keep this business in my family,” she told her advisors, “but no one else in my family wants to do this anymore. I’m worried that if I sell this business to an outsider, when things go well, they’ll keep all the spoils to themselves, and my employees, whom I care so much about, will wonder how I could do this to them after I left.”
Kelsey’s Advisor Team asked if she had considered selling the business to one or more of her employees.
“I pay them well, but I don’t think I pay them that well, even with the bonuses I give them,” Kelsey replied. “And when I’m done running this business, I want to be done for good. None of my employees can guarantee that for me right now.”
Progress Isn’t Always Linear
Like many business owners in her situation, Kelsey felt cornered. She wanted to do right by the people who worked for her. But she knew she couldn’t sell the company for anything except top dollar. Logic and legacy seemed mutually exclusive to her.
Fortunately, her Advisor Team showed her that there were ways to achieve financial security and sell to people she trusted, bringing logic and legacy together.
First, they agreed that she could not achieve financial security by selling to internal employees right now, or even in the next three to five years. When Kelsey clarified that she wasn’t planning to retire for at least another 10 years, it gave her team a much longer runway to allow internal employees to purchase the business for an amount that would let her achieve financial security.
Second, her Advisor Team asked if she had approached any internal employees about potentially buying her company. Kelsey said that she hadn’t because she didn’t want to scare anyone into thinking she was leaving, but that there was a group of managers who she believed could succeed as business owners running her business.
This allowed her Advisor Team to probe those employees to determine whether they would be interested in ownership. It turned out that four of the five managers they asked said that they would be thrilled to have that opportunity.
After determining her exit timeline and priming potential internal buyers, Kelsey’s Advisor Team turned to incentive planning to motivate and retain those managers. The incentive plans they created would require Kelsey’s targeted buyers to consistently meet performance goals that show that they could grow the business through their performance.
If those managers achieved their goals, they became eligible for a share of ownership. The incentive plans would remain active up until Kelsey’s target retirement date.
Navigating Twists
Over the years, two of the managers targeted as potential buyers did not meet the incentive plan goals. One of them left the company, while the other stayed in the company in their same position but without the opportunity to gain ownership shares.
The other two managers exceeded their goals. And as they accrued more ownership shares, they hired next-level managers to report to them who helped grow the company even more. Kelsey worked closely with these two managers to ensure that they knew how to maintain a positive work culture after she left.
When Kelsey formally announced that she would be retiring in one year and selling to the two internal managers, her employees shared both congratulations and a sense of relief. The two managers who would become owners were well known and trusted by the employees. And because the company had performed so well as they ramped up their responsibilities, the managers were able to pay Kelsey top dollar for her business once she left it.
After she exited, the new owners consistently invited her to offer advice and consultation to the business. She often agreed, if for no other reason than to make sure that the new ownership group was following through on what they had promised her. She knew that if they weren’t, there wasn’t much she could do, but she was consistently relieved to see that the business she had sold was still a tight-knit, well-run operation.
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.
About Altus Exit Strategies
David Jean is the Director of Altus Exit Strategies and a Principal at Albin, Randall & Bennett, where he is also the Practice Leader of the Succession Planning, Business Advisory, and Construction & Real Estate Services Teams. David works with business owners who want to improve their business’s value before they sell through the Seven-Step Exit Planning Preparation™ process. He has worked with companies from $5 million to $50 million in revenue across a range of industries.
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