(Part 4 of 6)
In our previous segments of this series, we have discussed the sequence of events leading up to the exciting big event that the business owner has worked toward: when you “cash out” and head towards your “second career” in retirement.
We find that many owners who go through this process do not always prepare themselves for the post-exit transition period. This can be a very challenging existence for a number of reasons.
Many sale agreements require that you remain with the company for a transitional period — usually 6 months to two years. During this time you may find that no longer being “in charge” is not only foreign to you, but a situation that you find incredibly frustrating. You may find that the new owner is making changes to your “beloved operations” that are very different from your philosophy and inconsistent with the way you ran the business for 20, 30, or 40 years!
You may also find that your former employees are not being treated in the manner that was at the core values of the company when you owned it. You may also find that after the initial transition period, you are still being paid and have an employee agreement, but there is very little for you to do but answer questions. You may even come to question in your own mind what your value is to this endeavor.
Our experience is that in about 40%-50% of these cases, the former owner terminates the transitional employment agreement before its term is complete. The former owner will be challenged by his or her own relevancy to the company they used to preside over, as the “troops” are now seeking direction from the management team installed by the new owner.
So as an owner contemplating a sale of your company, how do you avoid these pitfalls? To a certain degree, you can’t, as they come about as a result of a natural human reaction to life’s events. But you can help yourself as follows:
- Psychologically prepare yourself for this change. Many owners have sought counseling, or at least conferred with other business owners who have experienced a similar transition.
- Talk very candidly with the buyer and clearly define your terms, conditions and responsibilities during the transition period.
- We would recommend agreeing to a short transition period as practical, with options to extend upon mutual agreement, rather than a longer period.
- In the sale or exit event, if there are people or conditions you want to see maintained, negotiate for those in the sale agreement. Because after this transaction, you are no longer the owner, president or CEO – you gave up that authority upon the sale, and hopefully have a much larger bank account to show for it!
The key to a personally successful exit from your company and avoiding any second-guessing after the transaction includes:
- Honest self-reflection on your personal motivation for exiting, and acceptance that your professional life will change!
- Proper planning in all phases and negotiations of the transaction.
- If you have any “sacred cows” of any sort, cover these in the legal agreements related to the sale.
- Discuss any apprehensions with your spouse or significant other, as you will need their listening ear and support.
- Make it a fun event!
We as a firm have done a multitude of exit transitions on a number of different scales and structures. If we can help, please give us a call Jason Thompson at (317) 608-6694 or email [email protected].