Many small business owners start their companies with the vague idea that someday they want to be an absentee owner. Years pass, they work hard and become successful. Eventually, they are ready to transition out of the business. But, they get a nasty shock – they cannot do it. They have not done the preparation required to transition smoothly and are stuck.
An effective changeover takes time, planning, money and skill to complete. Unfortunately, a lot of owners learn this too late. By the time they realize it they are tired, burned out and ready to move on. They become depressed, frustrated and discouraged when they find out it may take a couple of years to make the change successfully.
Do not be this guy.
A worry free, profitable absentee ownership takes time and groundwork to achieve. The blueprint starts with these two main areas. Each area is equally important and, depending on your knowledge and experience, may require outside help.
Who should be in charge is a difficult decision for an owner to make. It is surprising how often he is unwilling to make the hard choices. It is the number one reason absentee ownership usually does not work out. The stories of absent owners coming back into the business to rescue it – or it going bankrupt – are common. The problem can be traced directly back to putting incompetent people in key management positions.
What an owner wants to happen and what is best for the company can be at odds. No matter how much he wants it, his child might not be the best choice to take over. He may have to pass over a loyal, trusted key person. The best thing for the company could be to hire from the outside. He must be willing to make the best long-term decision for the company.
This subject is a minefield and can benefit from an outsider’s point of view. There are legal, tax and emotional issues to take into account. Even the best-behaved families and employees change when money becomes involved. All financial and legal requirements should be decided and agreed upon well in advance. Here are just a few of the questions that should be answered.
What is reasonable to take out without financially hamstringing the company? How will the owner financially monitor the company? Will he retain decision-making power over expenditures? If so, what are the limits? Will the pay-outs fluctuate with profit/loss or remain consistent regardless of it? Will he retain 100% ownership?
Specific to a family business – Does the wealth of the company belong to the family, the owner or the business? Will the business be a part of the inheritance? What do family who do not work in the business get and how (stock, bonuses, buy-out, profit sharing)?
The dream of absentee ownership starts as a vague idea. But, an idea without a working plan just stays a dream. You have worked too hard, for too many years to throw a Hail Mary pass at the end because your game plan was incomplete from the start.
At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information: