What type of succession do you want?
- Do you want a family succession?
Family succession is very common, especially from the first to the second and even to the third generation. In some cases, the process begins informally, as if by osmosis, as children are introduced at a young age to the company. They grow up in the company: a few age-appropriate responsibilities, their first summer job, their choice of profession, training, entering the job market, an experience outside the family business, choosing to follow their parent’s footsteps and gaining more responsibilities. Membership in the family is not the only criteria to consider in choosing a successor. The skills, the sense of responsibility, acceptance by the management team and employees, work experience outside the family business and the capacity to maintain familial harmony are other criteria to look for. In addition, after selection, it is also necessary to train the successor.
Putting in place a family succession raises the question of equality regarding the other family members who will not be working in the company. Will they also own shares? If not, how will you determine their fair share of the family assets? What about your children’s spouses? Will you decide to limit ownership to your children only, or your grandchildren, excluding their spouses? These questions should be addressed if you decide on this type of succession.
- What if you decide on a management or employee buyout?
For your own reasons you may decide to entrust the future and continuation of your company to management already working in the company, if you believe that they are the most capable managers for the job.
A management or employee buyout is a path that requires careful examination. Management and employees are already familiar with the company. You recruited them on the basis of their skills and experience. Do you consider them competent enough to make the necessary decisions? Are they prepared to take on the financial risks of the acquisition? Will they be able to obtain the financing required for the transaction?
The role that you will play will be that of the guide and coach over a certain period of the transition, especially if you accepted a balance of sale or you will still hold shares in the company.
It is also entirely possible that the transfer combines a family succession and a management buyout. In fact, this is a route taken by more and more owner-managers.
- What if you decide to sell to a third party?
In the case of a sale to a third party, the steps in the transfer of ownership are different, and the process sometimes proceeds much more quickly.
You are nearing retirement, or your company is at a stage of growth that involves more risk than you either willing or want to take. You think that putting another generation in place will keep jobs in the region and inject new blood into the company, and you are interested in cashing out.
Selling your company to a third party is also an option. Of course, it is also possible that a buyer appears and offers a price well above your expectations. But you do not have to wait for that to happen. You can take the initiative to find a buyer. Perhaps you have some objectives in common with a buyer, such as increasing the distribution network and decreasing production costs, and a merger of the two companies is the answer. A possibility such as this deserves consideration. Maybe it is the best option for your company’s continuation.
If you are thinking about selling to a third party, do not wait until all the succession scenarios are exhausted and you have to scramble desperately to find a buyer. When the company is healthy and growing is the time to put a dynamic succession plan in place, and selling to a third party might correspond to your desire to keep jobs in the region, to ensure continuation of the business, to gather resources for your retirement, and to pass on an inheritance to your children who might create their own new businesses one day.
If you are thinking about selling, consult your accountant and your legal advisor. Give them the appropriate mandates: update the financial position of the company, valuation, update the legal position of the company, negotiation, and managing the tax and legal aspects of the transaction.
Move forward with order, rigor, and prudence.