KPM

Financial Statements Sec. 179 Tax Deduction Health Care Plan Assessing Customer Credit QBI Deduction Cash Withdrawal Small business retirement Spouse travel expenses Accounting Software Strategic Planning Process Insurance Schemes Enterprise Risk Management Program Account-Based Marketing Wrong Software For Your Organization Operational Review Internal Benchmarking Reports Sales approach Capturing Data Older Workers Pooled Employer Plans Financial Statement Options BOI Reporting Rules Privileged Users Medicare Premiums DOL Business valuation Trust Fund Recovery Penalty Value-Based Sales Fringe Benefits Green Lease Strategic Planning Financial Reporting Marketing Strategy Succession planning health care benefits Cyberinsurance PTO Buying Media Screening Pipeline Management Billing Best Practices Solo 401(k)

Could A Long-Term Deal Ease Your Succession Planning Woes?

Some business owners, particularly those who founded their companies, may find it hard to give up control to a successor. Maybe you just cannot identify the right person internally to fill your shoes. While retirement is not in your immediate future, you know you must eventually step down.

One potential solution is to find an outside buyer for your company and undertake a long-term deal to gradually cede control to them. Going this route can enable a transition to proceed at a more manageable pace.

Time & capital

For privately held businesses, long-term deals typically begin with the business owner selling a minority stake to a potential buyer. This initiates a tryout period to assess the two companies’ compatibility. The parties may sign an agreement in which the minority stakeholder has the option to offer a takeover bid after a specified period.

Beyond clearing a path for your succession plan, the deal also may provide needed capital. You can use the cash infusion from selling a minority stake to fund improvements such as:

  • Hiring additional staff
  • Paying down debt
  • Conducting research & development
  • Expanding your facilities

Any or all of these things can help grow your company’s market share and improve profitability. In turn, you will feel more comfortable in retirement knowing your business is doing well and in good hands.

Benefits for the buyer

You may be wondering what is in it for the buyer. A minority-stake purchase requires less cash than a full acquisition, helping buyers avoid finding outside deal financing. It also is less risky than a full purchase. Buyers can, for example, push for the company to achieve certain performance objectives before committing to buying it.

Integration also may be easier because buyers have time to coordinate with sellers to implement changes — an advantage when their information technology, accounting, or other major systems are dissimilar. In addition, in a typical merges and acquisitions transaction, decisions must be made quickly. But under a long-term deal, the parties can debate and negotiate options, which may improve the arrangement for everyone.

What is right for you

There are, of course, a wide variety of other strategies for creating and executing a succession plan, but if you are leaning toward finding a buyer and are in no rush to complete a sale, a long-term deal might be for you. Our firm can provide further information.

Related Articles

Talk with the pros

Our CPAs and advisors are a great resource if you’re ready to learn even more.