Some business owners — particularly those who founded their companies — may find it hard to give up control to a successor. Maybe you just can’t identify the right person internally to fill your shoes. While retirement isn’t in your immediate future, you know you must eventually step down.
One potential solution is to find an outside buyer for your company and undertake a long-term deal to gradually cede control to them. Going this route can enable a transition to proceed at a more manageable pace.
Time and capital
For privately-held businesses, long-term deals typically begin with the business owner selling a minority stake to a potential buyer. This initiates a tryout period to assess the two companies’ compatibility. The parties may sign an agreement in which the minority stakeholder has the option to offer a takeover bid after a specified period.
Beyond clearing a path for your succession plan, the deal also may provide needed capital. You can use the cash infusion from selling a minority stake to fund improvements such as:
- Hiring additional staff;
- Paying down debt;
- Conducting research and development; or
- Expanding your facilities.
Any or all of these things can help grow your company’s market share and improve profitability. In turn, you’ll feel more comfortable in retirement knowing your business is doing well and in good hands.
Benefits for the buyer
You may be wondering what’s in it for the buyer. A minority-stake purchase requires less cash than a full acquisition, helping buyers avoid finding outside deal financing. It’s also less risky than a full purchase. Buyers can, for example, push for the company to achieve certain performance objectives before committing to buying it.
Integration may also be easier because buyers have time to coordinate with sellers to implement changes — an advantage when their IT, accounting or other major systems are dissimilar. In addition, in a typical M&A transaction, decisions must be made quickly. But under a long-term deal, the parties can debate and negotiate options, which may improve the arrangement for everyone.
What’s right for you?
There are, of course, a wide variety of other strategies for creating and executing a succession plan. But if you’re leaning toward finding a buyer and are in no rush to complete a sale, a long-term deal might be for you. Alerding CPA Group has extensive experience with succession planning. Contact us to find out more: 317-569-4181 or www.alerdingcpagroup.com.
Other related succession planning blogs:
- 7 steps to choosing a successor for your family
- Valuation often affects succession plans in hard-to-see ways
- Ensuring a peaceful succession with a buy-sell agreement
- What can a valuation expert do for your succession plan?
- It’s never too early to start succession planning
- Business owners: put your successor to work before you set sail
- An effective succession plan calls for decisive action
- Mentoring can make your succession plan better
- Keeping your family business in the family