Transitioning Out of Your Business | Family Matters by Tony Layton

If you’re an entrepreneur, you know it’s
not easy to run a business. You need ambition, a clear vision and hard
work to be successful. So, it’s not surprising that so many entrepreneurs
– after devoting all that time and energy – don’t want to think about the day when
they will have to hand it over to someone else. But that lack of foresight can have dire consequences
— for your company, for your family and for your chances of enjoying a comfortable retirement. I’m Tony Layton, and in this episode of
Family Matters, we look at transitioning out of your business. Passing on your business is one of the biggest
challenges an entrepreneur faces. That’s why it’s so important to begin
planning early. You will need to assemble a team of advisors
that will likely include an accountant, a lawyer, a banker and your financial advisor. You might also want to hire a consultant who
specializes in business transitions. Once your team is in place, there will be
many important decisions to make as you build your succession plan. To start, you have to consider what to do
with the business when the time comes for you to step aside. Will you pass it on to your children? Will you sell it to your employees? Or will you try to find outside buyers? A lot will depend on the business and your
family. Is there a suitable successor among your children? Can the company be sold? Are there other shareholders? And… What do they want to do? When you think about your interests, a key
consideration should be to make sure you have enough money to fund your retirement. If you are thinking about transferring the
business to the next generation of your family, you have to ask: Does this business generate
enough income to both create a comfortable retirement for me and my spouse and continue
as a going concern? Assuming there is enough money for you to
retire and pass along a healthy business to your children, there will be another set of
questions about how the succession will work. Who will be your successor at the head of
the company? How should that person be groomed to take
over? How should the transaction be structured to
be fair to everyone involved and minimize taxes? If passing your business on to your children,
or another family member, is not an option, then you will have to consider selling it. At this point, an important consideration
will be whether the buyer will be a group of employees or someone from outside the firm. There are advantages and disadvantages to
both options. Your employees know the business and this
will make the transition easier. A study by the Business Development Bank of
Canada found transitions involving insiders – family members or employees – perform
better than outsider acquisitions. However, employees will tend to have less
money to put into the purchase. Typically, this means you will receive less
cash up front and have to put more vendor financing into the deal. Vendor financing involves you agreeing to
be paid a certain percentage of the sale price over time with interest. Here is where you want to keep your personal
financial situation in mind. How much cash do you need from the sale to
fund your retirement? If the vendor financing can’t be repaid,
will you be in trouble? A sale to outside parties may be more disruptive
to the company, but it may also lead to a higher price and more upfront cash, especially
if there are multiple bidders. The best way to get a high price for your
business is to be able to show good performance and strong profits over several years. You will also want to show potential buyers
that the company can run without you. That’s why you can’t take your foot off
the gas pedal now. You need to keep investing in technology,
equipment and marketing. You also need to make sure you have strong
employees and systems in place that allow the business to run efficiently when you’re
not around. It follows that preparing for the transition
is not something you can do at the last minute. Just like a house that’s had some plaster
and a coat of paint slapped on, potential buyers will soon see the true condition of
the property. Above all, you will need to be patient regardless
of what path you plan to take. I know from my own business experience that
transitions don’t always work the first time. In fact, it might take two, three or even more
tries. If you try to do it in a hurry, chances are
you will not get full value for your company. That’s why it’s important to stay cool,
be patient and don’t wait to get started. Have that discussion with your family, business
partners and key employees. And then, assemble your team of advisors and
lay out your plan. It’s not easy, but the earlier you start,
the better. If all goes well, you will enjoy the fruits
of your business career and ensure your legacy is preserved long into the future. Family Matters is a series all about helping
you maximize and preserve your family’s wealth. Do you have any questions or comments about
business transition? Please leave them below — I’d love to hear
from you. I’m Tony Layton and this is Family Matters. Don’t forget to subscribe and click the
bell to be notified when I release new videos.

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One thought on “Transitioning Out of Your Business | Family Matters by Tony Layton

  1. Great video. Could you do one on the first. How to leave it to a successor. We all have kids I'm sure that will be a good one. I have a holding that owns a few and want to learn how to pass it on one day to my kids or future kids. Thank you

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