By Dave Driscoll
What if I’m ready to retire, but my business still needs me?
That is a complicated question to answer. Both emotional and practical issues are wrapped up in that powerful statement, in addition to the missed opportunities to create a plan and avoid such a depressing situation when you are ready to retire.
You want and need to move on, but you can’t due to the lack of leadership to keep the business running successfully. Furthermore, your financial destiny is most likely completely invested in your business.
Given that the time required to train a person to replace you is not palatable – assume three to five years IF you have the right candidate – what is an owner to do?
Option 1: Stick it out. You must move quickly to create a leader for the enterprise.
There are many bear traps embedded in the “stick it out” scenario. Imagine how anxious you would be to jump at the first warm body who might have the right stuff (or the close-enough stuff) if you want to retire from the business now, but you’re being told to wait three to five years to train a leader? The potential for disappointment or outright failure is extremely high, regardless of the abilities of a chosen successor. Your desire to “get the training process over with” so you can move on is counter-productive. After training, you really need to delegate the authority to your “replacement” to run the operation in your absence as a test run. Only when you can take a vacation from the business for three to five weeks – without checking in! – and return to find that no disasters were created by your absence, will there be proof that the training is complete.
If you are successful at the “stick it out” scenario, your options multiply. However, if you have not actually bestowed the authority to your successor, despite your hard work, you will still have an owner-centric organization that has not accomplished your goal and will not deliver the value you need to support your freedom and retirement.
Potential outcomes from a successful “stick it out” scenario:
- Continue to receive compensation from the business in semi-retirement.
- As the chosen successor effectively operates the business, your confidence in his/her ability to purchase the business will increase. A purchase would likely occur over time, because the successor buyer probably has no money and YOU will need to finance a major portion of the buyer’s purchase. Not desirable, but realistic. You stuck it out, trained your replacement, and now you need to finance your own buyout, accepting risk of repayment into your retirement years. I didn’t say it would be pretty; that’s the price to be paid for the years of procrastinating instead of succession planning.
- Sell the Business. With a solid second-in-command, the business has become more desirable than an owner-centric enterprise, and the probability of continuing the historical operational and financial performance is enhanced, providing stability to a future buyer.
Option 2: Look for a merger candidate.
If you recognize that you don’t have the energy or time to accomplish the “stick it out” scenario, identify an industry competitor or a company tangent to your industry to merge with your business.
Be prepared for the buyer to require you to stay on for a transition period. Also, realize that some of the sale price will be paid post-close, tied to your and/or the acquired company’s performance.
Owner fatigue will creep into your life as you get older. Even the most committed, driven owners who believe they will never want to retire, eventually want viable options to enjoy a “Life Beyond Business.” Always be mindful of how quickly time passes and prepare for your exit before your options become limited.
Dave Driscoll is president of Metro Business Advisors, a business brokerage, valuation and exit planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Dave at DDriscoll@MetroBusinessAdvisors.com or (314) 303-5600. www.MetroBusinessAdvisors.com