Business Succession -- It’s Never Too Early to Plan Your Exit
August 4th, 2014
There are myriad ways to begin the exit process from your business without giving up management control. [Here] are some ideas to structure for an eventual departure, without having to hand over the keys to the business right now.
Business succession planning is an inevitable process, one of which needs to be addressed well before you are ready to “clock out” for good. And since it took time to build your business the right way, it will also take proper time and planning to leave it on your own terms. Luckily, you can start planning your exit in such a way that allows you to retain management control during the process.
So, how do you structure the business so that you can start succession while still sitting on the throne? A recent Forbes article titled “How To Retain Control, Even As You Exit” provides some practical advice.
At the most basic level, you may want to adjust the structure of the business itself. Is it an LLC? If yes, then retain control by making it a “manager-managed” LLC and retain the management position. Is it a corporation? If yes, then there are more options. For instance, you could issue various types of stock, either in different classes (voting vs. non-voting), or even offer restricted stock that becomes vested only upon certain conditions. The corporate structure also offers other powerful tools like Employee Stock Ownership Purchase (ESOP) arrangements.
Your approach and the timing of your exit will depend on other factors, not the least of which hinges on your successors. When will they be ready to assume more control? Even more important, when will you be ready to begin relinquishing control?
More often than not, you can structure an exit so both control and financial gain slowly adjust to everyone’s benefit, but you have to start with a plan.
Reference: Forbes (April 10, 2013) “How To Retain Control, Even As You Exit”