Get Out Your Golden Handcuffs: A Way To Retain Your Key Employees

Whether you are planning to sell your company to an outside owner (third party sale) or a family member or key employee (relationship sale), your key managers and employees are essential to the future success of your business.

But what exactly does this mean?

It means you must assess and identify which of your key employees are essential? Who do you need to lead and run the business? Then it is time to look at how to keep these key employees involved in the business after you are gone.

The most common way to do this is to offer some sort of incentive to the key employees who are essential to running the business, especially if some of these employees could be potential owners one day. Keeping them invested in the business as if it were their own, builds commitment while building capability to run your business profitably and sustainably.

Talk to your financial advisor to learn about the use of benefit packages that favor your key employees. These plans are designed to keep key employees on board, giving them the opportunity to act like owners without having to share the equity of your entire company.

The main benefit of these benefit plans is that you can design it however you feel is best for both your company and your exit. This means that:

• You can choose the employees you wish to keep on board.
• You can design the plan so employees who leave the company will no longer receive the benefits once they exit.
• You can make it so the financial incentive they receive goes towards them becoming an owner of the business.

The key is to provide sufficient incentive to keep them from running to another career opportunity. There are some very creative ways of doing this, and it’s worth investigating. Your key employees are the people who will keep the business profitable and keep the value high, whether a third party owns your business, or your employees buy you out. Keeping them happy and committed to your business is important.

Stop Making Excuses – Start Planning!

Most business owners make excuses as to why they won’t leave their business. But making excuses only leads to procrastination and the unpreparedness that may lead you to squander a great deal, or not be able to leave when you wish. You have nurtured and grown your business, maybe from nothing. It has been one of the most important things in your life, and deciding when to leave it behind is equally as important.

Some common excuses from business owners and ways to combat them include:

• Darn! My business isn’t worth enough to meet my needs. This excuse is legitimate, but also can be addressed. Making an exit plan to drive up value years before you intend to leave will help ensure that when the time comes, your business will leave you financially stable. Start now to identify the most productive and tax-efficient ways to leave on your own terms.
• This business is my life! Who will I be without it? It can be scary to leave behind something you’ve poured your heart and soul into for the last thirty years, but if you invest some energy in assessing what motivates you, you can find a meaningful and rewarding lifestyle in your post-business life.
• A buyer will find me when the time is right. If only… This passivity can lead to working much longer than expected, much longer than wanted, or it can result in a bad deal for you. Being an active seller is better than waiting; the market of tomorrow may not be perfect, you never know when a competitor can move in or another recession hits. Working towards finding a suitable buyer is always better than waiting for one to come to you.
• I will be required to work for a new owner for years. Not if you make sure you have a solid team to run the business while you’re still there. Invest in their professional development. The less you need to be involved now, the less you’ll need to be involved then. Your business is more valuable if you don’t need to run it day in and day out.

Start planning for this transition now to secure your financial security and future happiness and to ensure the sustainability of your business for your employees and customers. There may not be a perfect time to exit, but the time to start planning is now. When you actually walk away is an incredibly personal decision that only you can make.

No More Scary Stories

I recently had the privilege of being with a very talented group of financial service professionals at the second Succession Planning Roundtable meeting, as they shared their SCARY stories of succession and exit.

Scary?

Yes, very scary. As financial service professionals, they tend to see the good, the bad and a lot of ugly when they work with business owners through major life events. Selling a business to a third party, estate planning, actually leaving the business, turning over the day to day to a son or daughter, are all major life events that if not done well, can have disastrous consequences. Every one of the 30 people in the room had clients who had experienced disaster. We heard about

• A business not properly covered for risk and liability at purchase, creating a costly outcome for the buyer, followed by a lawsuit against the seller.
• Business ownership in the estate plan split evenly between a son running the business and another who is disengaged, owner passes away creating all kinds of issues around business influence, asset value splits, and more.
• Son or daughter not prepared to run the business and owner/father becomes ill. No plans in place to sustain business. Business struggles and nearly goes under.

I could give you a hundred stories. Unfortunately, this group sees them every day.

And yet I marveled as I listened to these very caring, wise, experienced professionals describe the advice they had offered as they anticipated these risks, and the hoops they jumped through to save the client time, money, stress, legal/tax woes, once they were invited in to help.

With these kinds of resources at my fingertips – business attorneys, financial advisors, risk advisors, estate planning attorneys, M&A experts, investment bankers, business brokers and me -- I’m starting a new section of The Donnelly Report bi-weekly newsletter. If you are not a subscriber, click here to register. This section, called ‘Dear Abby’, will answer your most pressing questions about succession and exit. Baby boomer owners will remember Dear Abby. I certainly do! I’ve received many pressing questions over the years because of her legacy. I hope you will write me with questions you have about Succession, Exit, Leadership and Legacy.

Your questions will be handled with the utmost level of confidentiality and with complete anonymity. Email your questions to me. I’ll tap into this razor sharp group of resources and get you an answer.

The Succession Planning Roundtable was started to facilitate networking, relationship building and learning from each other so we can support the massive number of owners that will be exiting their business in the next 15 years. If you want to learn more about this stellar group of professionals at the Succession Planning Roundtable, let me know. Meetings are open to all and are free!