Saturday, September 23, 2023
By Andi Gray

Dilemma: It’s time to pass the company along to tomorrow’s leaders. They’re already here; they’ve been doing the work. And I’m ready to play, to do other things, to lay down the responsibilities I’ve carried for so long. What do I need to think about?

Thoughts of the Day: Securing the business for the next generation is an act of maturity. First, you have to figure out what you want to accomplish. Build a team of skilled local advisers to help you. Create a timeline to help you stay on track.

Next Generation Letting go is hard for any business owner. The business is your baby and your legacy. When the next generation takes over, they’ll have their own ideas—which may be different from what you wanted. You’ll have to get out of the way.

When it comes to shareholders and long-term business success, the most productive ownership outcomes:

• Are internal to the business, both focused on and fully committed to achieving long-term growth, profit, and stability for the business;
• Are knowledgeable about the business and stay current with best practices related to growing a profitable, productive, long-term business;
• Understand and commit to the value of written plans and skilled talent and tools; and • Have rules resolving shareholder disputes and votes that end in ties.

As you prepare to give up your shares, ask yourself: How much money do you need to live on, for how long, and how does that compare to what the business is able to pay you for your shares? Consider whether you want to continue being a shareholder and if incumbent shareholders will stick around in case of delays. As many businesses in this industry have family members already working for the company, you may have to decide who will receive shares and what will go to family outside the business (such as your spouse). Lastly, you have to determine how ready the shareholders are to act in the best interest of the business that you built.

Discuss the rights and obligations of ownership with your next-generation candidates. For example:

• Shareholders have the right to profit distributions proportional to the percent of total shares they own, and will have to pay taxes on those profits.
• If the company gets into financial difficulty, shareholders may be asked to lend money to the company or otherwise provide financial coverage.
• Shareholders will be expected to make time for the business—attend meetings, make major decisions, go on record by voting their shares, and meet with a board, management team, and outsider advisers, to name a few.
"Get your head around your own future outside the business…"
Get incumbent owners to practice acting as governors of the business. Ask them to sit in to learn how the business is run and decisions are made. Give them room to try their hands at ownership and watch how they handle themselves before you turn over your shares.

Think through who will advise all parties on the sale of the business. You’ll need an accountant and an attorney, as will the business and the future shareholders. Some decisions will be governed by your company’s structure:

S corporation, limited partnership, C corporation, etc. Well before

it’s time to begin the transition, get a handle on the pros and cons of each structure.

Make sure your advisers are experts in the laws of the state in which your business is registered. Check references and credentials, and verify expertise conducting successful shareholder transitions. Working with someone local is a real advantage, as it makes it much easier to get all of your advisers together for in-person discussions when needed.

Build a list of the things you’ll have to do, with firm due dates. Factor in time for the transaction to unfold legally. Get your head around your own future outside the business, but prepare the next generation of owners and managers for success. Practice stepping back from active involvement, and it will soon be a reality.

Andi Gray is the founder of the Business Consulting Firm Strategy Leaders. She can be reached at andi@strategyleaders.com.