For some of us, this is a classic conundrum – you know, a riddle sometimes having no “good” options.  Fortunately, succession planning almost always involves one or more “good” options.  For our purposes, those options include transition of the business to the next generation; sale to employees or to an outside third party; or, liquidation.  The sooner you know which of these makes the most sense for you to follow, the better off everyone will be.

Let’s begin with transition to the next generation.  Those folks may not want to work in the business, but that doesn’t mean they wouldn’t like to own it as an investment.  Explore those options with them, and then decide on how to build an infrastructure that would support family members who simply want to own the business.  Use appropriate financial/estate planning protocols to allow those who want out to get out, create an advisory board of directors to help provide business expertise, and staff key management positions with professional business managers/leaders whose compensation package is tied directly to the performance and financial success of the business.  

In the “sale” scenario, your role is to act as a resource “shepherd” by taking into consideration the impact of the sale on the employees, vendors, customers, and community in general.  The big question you might have to answer here is another conundrum:  Do I sell for maximum value to me or do I sell to maximize the impact for all stakeholders?  That’s a question that a good many people will have an opinion about, but one that only you can answer.

ESOP’s, or Employee Stock Ownership Plans, are becoming increasingly popular; and they work well as a tool for monetizing the first generation involved in the sale transaction.  There are many tax advantages available to the selling shareholders that assist in maximizing the value of the business.  Unlike other forms of qualified plans, an ESOP may borrow money to make investments in the sponsoring corporation.   

Liquidation may be the “nuclear option” of choices.  Most people don’t want to simply sell off assets and close up shop, but that sometimes happens.  The critical decision is whether or not this provides you with an acceptable exit strategy.  The larger your business, the less likely that is to be the case. 

Regardless of the option you choose, it is important to recognize that one of the prime purposes of succession planning is to continue building the present value of your business to increase your future financial position.  To do so, it is always important to consider the following factors:  your motivation and perspective; your personal estate and financial planning; business structure; strategic planning; business performance; management synergy and teamwork; leadership continuity; successor identification and development; family dynamics; and family governance.   

Taken collectively, these factors are what really create the legacy you’ll be passing on to someone in some form.  Any one of the options above can help that legacy be a rich one, regardless of how you define “rich”.

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