Ownership transition is an issue that many businesses will address in the years ahead, either directly or indirectly. According to the U.S. Census Bureau, nearly two-thirds of the 4 million U.S. companies are owned by baby boomers and many are looking to retire or scale back their work.

While it takes years and years to build a company beyond its founder(s), most owners have a difficult time thinking through viable options and making plans for ownership succession. Benefit brokerages are no different. Many owners are not prepared to consider life after their company, as it’s often a very emotional discussion and very few people can add value to such a discussion.

Also see:5 top-grossing large-group brokerages in each state, part 1.”

Who does an aging owner talk to? This subject goes well beyond estate planning and your lawyer or your CPA. It’s also difficult to discuss your options with key producers. To openly discuss this topic with your spouse, adult children, general business friends or key employees may lead to inappropriate expectations and/or it may expose an element of weakness in the owner as a leader of the enterprise. I often say, ownership/leadership can be lonely at the top, and often is.

Of course, there are many factors one must consider when working through succession plan options and related decision-making process. The variables often center on accessing liquidity, maintaining control, and preserving a legacy. That said, many owners are incredibly thoughtful of the employees that worked along-side of him/her for many years — adding value to the business year after year. At the same time, most often, this group of employees cannot afford a “management buy-out.”

So, what are my options?

  • Go public: Expensive, size matters and sophistication is off the charts. Good for a liquidity event.
  • Sell to competitor: Not rewarding to your employees and often does not feel good to anyone. Likely, the owner will need to be involved for a few years to maximize your earn-out.
  • Sell to strategic buyer: Usually the price is better than selling to a controlled group, but your culture will change and your management team and their respective roles will be diluted over time.
  • While you get a large lump-sum up front, you will likely need to stick around to earn your strategic purchase.
  • Partner with a private equity partner/financial sponsor: Often a good option so you can take some chips off the table (lessen your risk), maintain some control, formalize business process and decision-making authority and you can build in an exit and pre-defined valuation for your remaining interest. On the other hand, you now have a financial partner with built-in expectations.
  • Part management buy-out and part ESOP: Your legacy will be sustained and built upon in the years to come. Your involvement and ongoing leadership and guidance will be important so you will need “time and patience” to transition the process. The trick will be how best to finance such a multi-tiered transition and at what value?

Now what; how do I proceed?
Despite the wide variety of possible situations and options for approaching them, a couple of rules apply in every case: First, plan ahead. Second, find the adviser you trust, one that can properly think through the possibilities that best fit you and your circumstances.

Also see:5 top-grossing large-group brokerages in each state, part 2.”

You need to work with someone who has facilitated each of the variety of options and then select your adviser based upon the final decision you make (market and sell your company to an outside party or to work with someone specializing in an internal transition).

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