Exchanging your Role for an Exciting Roll

By Tom Zucker, President

As a business owner you’ve had to assume many roles in your company to make it successful. These roles range from chief rain maker, head project manager, talent recruiter and occasionally even the janitor. As time progressed, you’ve likely delegated a few of these responsibilities to enable you to prioritize your time on more strategic matters.

However, as owners approach the sale of their business, they need clarity on the role they perform in the company today and more importantly post-sale. The ability for core functions of the business to be performed by capable and talented management is essential to a successful transition.

An owner focused on their role in a company will be limited to what they are able to accomplish. An entrepreneur unwilling to relinquish their demanding roles in the business will forever be tied to the organization that they built. This mindset limits the owner’s freedom but also greatly limits his earning potential. Famous business coach and author Michael Gerber once said, “Work ON your business, not IN your business.”

We have suggested to many business owners of trading in their ROLE for a more exciting ROLL

“The Roll” that I am speaking about is the ability to partially sell your business and leverage the buyers connections and experience to build your business faster. The business builder can be a private equity firm, family office, or committed strategic business partner. The key is to let your leadership team assume the roles within the business, and to find a partner to meaningfully grow your business. The rolling of equity with a new partner will reinvigorate you and your company and enable you to see the true market potential of your business.

The owner that focuses on ”The Roll” will see more growth and wealth creation than one focused on their individual roles within their company. A few ancillary benefits to consider are:

  • Expanded Engagement: Engaging existing and new leaders to expand the company focus and future. Sharing equity and upside is so important to create exponential wealth and value creation.

 

  • Find New Boundaries: With “chips off the table”, an owner is often willing to take more calculated risks. Whether it is an acquisition, key hire, or entrance into a new market. These are opportunities that have always existed, but for many reasons have never been acted upon. It is time for scaling the business with calculated investments.

 

  • Skilled Guide: The ability to have someone that has been there before is priceless. The risk of failure decreases significantly when you have an intelligent and experienced guide. Relationships, experience, and business building skills are important to your company’s future success.

As you consider “the roll”, it is important to understand that various structures and approaches exist. We have successfully assisted owners with majority recapitalizations, dividend recaps, minority recapitalizations, and many other variations of equity rollovers. Owners often place a high value on equity and operational control of their business, and thus tend to favor smaller equity investments. This is a great way to get access to talented business builders while unleashing the potential of your business. We encourage you to engage with an M&A advisor to explore your company’s valuation, transition options, and the benefits of rollover equity options.

In summary, the owner that relinquishes their roles in their business for a compelling “Roll” will be rewarded with more bread (wealth) and freedom (time) than they have previously had.

 

© Copyrighted by Tom Zucker, President of EdgePoint Capital Advisors, merger & acquisition advisors. Tom can be reached at 216-342-5858 or on the web at www.edgepoint.com.

 

Succession Planning for Family Businesses

By Tom Zucker, President

The majority of family-owned businesses are unprepared for the transition of leadership and control that is inevitable. Many owners feel infallible, ageless, and frankly that they will have time to address these matter at a later time. Unfortunately, the time never comes until an event prompts action. The outcome for the family-held business and their employees is less than ideal.

The industry is littered with statistical evidence of the unprepared family business owner:

  • PWC’s 2021 Global Family Business survey concluded that 66% of businesses don’t have a succession plan, and that 47% of family business owners who expect to retire in five years don’t have a successor.
  • Young Presidents Organization (YPO) states “Without an effective plan for succession, more than 85% of family businesses fail by the third generation and over 95% fail beyond that.”
  • Numerous family business centers websites indicate that the majority of family businesses have ineffective communication between generations on the importance of succession planning.
  • Almost 40% of family business owners aim to retire within the next decade, according to MassMutual’s American Family Business Survey.

The importance of succession planning needs to be a strategic priority for any company with ownership in excess of 50 years old. The leadership in charge of family held business must make a directed effort to plan for succession. The succession planning needs to be integrated with the company and family’s long-term objectives. A written and well communicated succession plan is essential for strategic alignment to help enable a company to thrive into the future.

With market uncertainty, business owners must approach succession planning strategically. Here are three considerations that are critical to maximizing your company’s value and achieving the exit strategy that best suits both your family’s and the business’s needs.

View The Business as a Buyer

Owners must view the company as a buyer would and prepare to present the business’s full potential to prospects. For example, experienced buyers value aligned and capable leadership teams.  Does your succession plan engage and motivate the leadership? Sellers will need to present the company in the best light possible.

Share the Succession Plan

Preparing a succession plan is important, but sharing the plan with key leadership and family is ideal. Whether the plan is to transition the business to a family member, or sell to an outside party, the various stakeholders need to be part of the transition planning process.

Know Your Options

For many businesses, a transition within the family or to management is ideal, but for many companies this is not a realistic option. A transition within the family obviously depends on the skills and interests of the next generation. But owners must also consider the competitive landscape of their industry and what the operating environment will look like for their successor. For instance, industry consolidation trends could change the viability of the company for the next generation, especially if the business must assume a high amount of debt to pay out the current owner’s share.

Proper succession planning sets businesses apart because the majority of family-owned businesses are unprepared for the transition of leadership and control that is inevitable.  By focusing on these suggestions, owners can achieve the best price and terms for their company and position their business and family for future success.

 

© Copyrighted by Tom Zucker, President of EdgePoint Capital Advisors, merger & acquisition advisors. Tom can be reached at 216-342-5858 or on the web at www.edgepoint.com