It's not easy to grasp the idea of a retirement date, says Evergreen Consulting's Brent Grover in the MDM Audio Conference, Succession Planning: Leaving Your Business Better."This is very long-range planning,"he says.
Grover went through the same thing in 1982. At that time, he was working in the family's distribution business founded by his grandfather. The second generation needed to set a retirement date.
Grover compared the situation to a Patek Philippe watch ad: "Their advertisement says that you never actually own one, you merely look after it for the next generation."
Some companies operate that way, and "live"to pass the company on to the next generation. "I was fortunate that I came from a family that did plan,"Grover says.
In his case, three brothers held equal stakes in the business. The first question: How to divide the interest in the business?
"If there are three brothers and one of them has two kids in the business and the other has one, are these three people going to own the business equally?"Grover asks.
Or would the two brothers own half and the single cousin own the other half? Other questions to consider: When is the best time to retire? How will widows be provided for? How will you fund the payout and over what period of time? What about appraisals?
What about the youngest child of one of the partners who isn't sure yet whether he will join the business? Can we give him an option to come into the company?
"These things take time to resolve and sometimes they can't be resolved without some very big emotions opening up,"Grover says. "It's a difficult process for any family, and I think that ours handled this process extremely well."
Five years after this process, Grover's father died unexpectedly.
"We had a roadmap of what we were going to do with the business and how things would work from that point on. I would suspect that had we not had those plans, the business might have been sold. Fortunately, it wasn't necessary to do that."
If you are in a second or third generation, start with a timeline for your business. Look at known activities in your family, people's ages, and when people would like to retire. Look at the projected growth and cash flow of the business and the cash needs for the business and family members.Then start with different scenarios for your exit and see what would work best for the family. There are options. One is to keep the business in the family. The next is to sell it to employees, and the third is to sell the business to a third party.
"Under each of these possible scenarios are some options including a leveraged buyout or an outright sale, possibly gifts or an ESOP plan or recapitalization,"Grover says. "Each of those is a different set of circumstances, and my recommendation is to sit down as a family and decide what suits your needs best."-Lindsay Young
The MDM Audio Conference, "Succession Planning: Leave Your Business Better,"is available on CD by calling 1-888-742-5060. Order online by clicking here.