Last week I received a call from a friend who is an advisor. He was recently approached by a business owner client who is considering a possible exit from his business. This particular owner has enjoyed the past 30 years of leading and growing this business, but is now at a point where he wants to travel and spend more time with his family. He has one son in the business, and two children who are not involved in the business. One is an artist in San Diego and the other has special needs. She was born with Down’s syndrome and is a true inspiration to her father. He wants to spend more time with the children he rarely saw while he was growing his organization. When I asked my friend what paths this client had explored as a possible exit strategy, he answered “He hasn’t yet. I was over at his office doing a benefit review and he mentioned a friend of his told him to look into an ESOP. That’s when I called you”.
These conversations are happening every day as we speak across the US. According to The Conway Center for Family Business, the mean age of a controlling shareholder in a family business is age 60. This means over the next 10-15 years, many closely held businesses will be looking for guidance on how to exit their business in a manner that allows for them to maximize their value for their family while ensuring a sound succession to the next generation of leadership. The terms exit and succession planning go hand in hand. Without a well thought out exit strategy, the chances of a solid succession plan are slim to none.
As advisors, how can we best help our clients explore the paths available? We can begin by asking them a simple, yet profound question. “What is it that you really want?” If their primary objective is to leave the business in the hands of the family, then focus on the best possible strategies there. If the main objective is creating an opportunity for the key employees to become owners, then start there. The potential paths will begin to form once the business owner has time to reflect and create a vision of what he or she truly wants. As their trusted advisor and friend, it is our obligation to help them find clarity in these areas.
Start with these questions:
1) In terms of your exit and succession plan, what is it that you really want?
2) If your plan is to keep the business in the family, who will run the business?
3) If you plan to sell the business, what are your thoughts on the value of the business?
4) Have you ever had the business valued?
5) Has anyone approached you recently to buy the business? If so, at what price?
6) Who will replace the skills you bring to the table and is in the best position to assume your key relationships?
7) Are there any gaps in the next generation of leadership that need to be filled today?
There are many possible questions to ask, and these are just a few that can help start the dialogue. Remember, we do not have to be experts in this arena. We can bring the necessary experts in based on the answers to the above questions. However, as our client’s friend and trusted advisor, we can be the catalyst that move this conversation in the right direction. A direction that ensures a stronger business today and in the future.