By: Bryan P. Murray, CFP®
The end of last November, I was sitting in a hotel room enjoying some fantastic day-time TV waiting for the end of a twelve hour(!!!!) flight delay for our trip to South Africa. As I aimlessly flipped through channels, I came across a marathon of Charlie and the Chocolate Factory (yes, both versions) While watching, I apparently hadn’t taken off my financial planning hat yet because throughout the movies, all I could think about was Willy Wonka’s true goal in the movie – developing a succession plan for his business! Admittedly, this lead me down a bit of a rabbit hole of comparisons (some more of a stretch than others), but this gave a great basis for discussing the various exit paths available to business owners.
When we discuss succession or exit planning strategies with our business owner clients, we’re typically evaluating five different exit paths to determine the best option for them and their business. While there are several iterations of each of these, the primary five exit options I’ll be covering today are:
While the “Golden Ticket” competition shows that Willy had one idea in mind, many of the other options appear throughout the movie. We also must note, we’re making several assumptions about the business and its operations. Many of which could be a bit of a stretch, but fun to think about nonetheless!
Aforementioned, a big hurdle for the firm, successor and exiting owner will face is the perception the internal and external forces will have. If any of those forces are uncertain about how well the next generation will come into the fold, they could question buying from, selling to or working for the organization after the senior generation exits. However, even if the kids have been active in the business, there’s still the question of employee v. owner mindset. If the successor has only been exposed to their position in the business, they might not realize the other aspects that come into play. The son building the houses may not be exposed to hiring/firing or business development, the daughter in marketing may not have relationships with suppliers, etc.. They also must understand the sacrifice that may be necessary as an owner. They never saw Mom and Dad mortgaging the house to ensure they could cover payroll, they only enjoyed the fruits of Mom & Dad’s labor.
So, in short, no. Going from disallowing all outsiders in the building, let alone opening his operations and finances to the outside world is not something that he’d be comfortable doing.
Now that we’ve run through the avenues Willy can take to exit his business, how can he determine the appropriate timing for his exit?
The first step is determining how prepared financially and emotionally the business owner is to exit the business. In Willy’s case, he appears to be aware of his own mortality and the need to begin charting his exit path. However, we must also consider the following:
After determining the business owner’s financial and emotional readiness, we need to evaluate the dependency the business has on the owner.
In Willy’s case, the operational side of things seem to hum without his involvement – thanks to the wondrous Oompas. On the other side, will the Oompas be able to step into the creative side and keep the innovation and face of the business as it’s been under Willy’s leadership? Will this new person have the ability to take on those creative and business development roles?
While the example of Willy and the succession of his chocolate factory may be far-fetched, this idea of exiting your business is a very real one for thousands of business owners each year. If you’re one of those business owners looking to figure out how you’re going to exit, don’t leave it up to a golden ticket competition to determine your successor!
Get your exit plan started today with our Business Exit Readiness Index (http://berireport.com/Survey/Register/93813B4C_7070) and Owner Dependency Index (http://www.odireport.com/Survey/Register/93813B4C_96) Surveys or reach out to our business owner team today.
Bryan Murray is a registered representative of Lincoln Financial Advisors.
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