Start, Scale, Step Back: The Business Owner’s Transition
In this episode, Elliot Kallen brings on Laurie Barkman to discuss the intricate journey every entrepreneur faces: the path from birthing a business idea to the emotional and pragmatic challenges of selling and transitioning into Retirement. They discuss the essential role of an advisor, the hazards of not being adequately prepared for transitions, and the significance of charitable considerations post-sale.
Meet Our Guest
Laurie Barkman
Author | M&A Advisor | Award Winning Podcaster & Speaker
Laurie earned an MBA from Carnegie Mellon University Tepper School of Business and a Bachelor of Science from Cornell University. She has a Certificate in Exit Planning from The Exit Planning Institute and is a former middle-market CEO with an exit to FedEx in 2015. She was also a Managing Partner of a private equity firm where she led deal sourcing, strategy, and due diligence. To support Education and economic development opportunities for women, urban youth, and entrepreneurs, she serves on Boards for PowerLink, Center for Ageless Entrepreneurship, The Pittsburgh Promise, and is an Advisory Board Member for Safety io, a subsidiary of MSA Safety.
The Business Owner’s Journey to Retirement
Understanding the Role of a Business Advisor in an Entrepreneur’s Journey
A “Business Transition Sherpa” represents the journey that entrepreneurs undertake. This journey begins the moment you initiate your business and continues until you decide to bring it to a halt. Each entrepreneur’s journey is distinct, but the common thread is the need for guidance and support throughout. This is where the term “business transition Sherpa” comes into play. Transition is not a mere moment but a continuous movement from one phase to another. Remember, you didn’t establish your business single-handedly. So, why would you consider selling or transitioning it alone? My philosophy as a Business Transition and Mergers Acquisitions advisor centers around assisting lower-middle market companies. My role? To clarify those swirling doubts in your mind, voice them, and help you find solutions. My mission is to be there with you, guiding every step of your transition journey.
The Risks of Blindly Following a Business Transition Advisor
First and foremost, only sign something you’re fully committed to. For instance, if you’re presented with a nondisclosure agreement, it might not always be necessary to involve an attorney but use your judgment. However, when it comes to letters of intent or business offers, ensure you have them legally reviewed before signing. The same rule applies to purchase agreements – always have them vetted by legal professionals. Another crucial point is to guard your confidential information zealously. Before divulging any confidential details, especially to competitors, ensure you have a nondisclosure agreement in place. Prematurely revealing too much can severely handicap you in negotiations. When it comes to sharing sensitive business details, caution is paramount. There are numerous pitfalls awaiting the unwary.
The Emotional Journey of Selling Your Business
Preparing to Sell: Emotions, Readiness, and Timing
Entrepreneurs often grapple with deep emotions surrounding the decision to sell their business when considering the next chapter in their lives. This is unsurprising since for many, their business is their “baby.” Ideally, a business should be prepared for sale at any moment. This readiness implies a business with well-ordered financials, streamlined processes, an accountable team, and the ability to flourish without the owner’s constant involvement.
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If an owner drives more than 40% of the revenue or is the linchpin in product or service delivery, this poses a risk to potential buyers. In essence, a highly sellable business is one with transferability, allure, and minimizing risks. Even within the same industry, two companies with identical revenues can have varying valuations. Time plays a pivotal role in this process. With ample time, business owners can make strategic changes that enhance their value. Ideally, entrepreneurs should grant themselves 5 to 7 years, if not 10, for this transition. However, the real-world scenario often ranges between 1 to 3 years, which can be challenging.
The Reality of Selling Decisions for Business Owners
Why Spontaneous Decisions to Sell Can Pose Challenges
While some business owners might wake up one day, resolved to sell, this approach can be problematic. Many now recognize the essence of adequate planning before selling. When these owners approach me with an approximate timeline, I urge them to factor in potential years spent with the acquirer post-sale, the time required for preparations, and decision-making if there are multiple owners. The sale process itself could span a year. Consequently, if a business owner aims to retire in five years, starting preparations three years in advance is crucial. This perspective has been an eye-opener for many who realize the depth of what they don’t know about the sale process. Preparations must begin sooner rather than later.
Retirement and The Emotional Dilemma of Letting Go
Addressing the Identity Crisis Faced by Retiring Entrepreneurs
When individuals like you approach retirement, and work has been their sole passion, the transition can be distressing. A 2015 Harvard Business Review article shed light on alarming suicide statistics among retired males, particularly those exiting corporate roles. The essence of the piece was emphasizing the importance of building a life outside of work before retirement.
So, what does retirement genuinely signify today? A trending hashtag, #neverretire, on Yahoo Finance recently caught my attention. The journalist inquired about its implications – was it positive or negative? From an M&A advisor perspective, it can swing both ways. We’ve observed numerous business owners, especially from the baby Boomer Generation, retaining their businesses longer than anticipated. While financial reasons could be a driving factor, another aspect is their reluctance to detach from familiar terrains and identities. Transitioning can induce feelings of loneliness and immense challenges, making it a pivotal subject to address.
The Transition Mindset
Finding Purpose and Passion Beyond Business
When I guide businesses through transitions and their owners express uncertainty about their future roles, I emphasize the concept of a “transition mindset.” This is covered extensively in my book, The Business Transition Handbook. It’s vital to reassess the roles we play, the Relationships we cherish, and our core values. If not engrossed in business daily, how might we reimagine our days? For some clients, this transition period is an opportunity to prioritize health and wellness, while others dream of adventurous travels or meaningful moments with loved ones.
One client, deeply rooted in his church, desires to intensify his involvement post-retirement. Every individual’s perspective is unique. As business owners, work often consumes our lives, making it challenging to strike a balance. Life’s paradox is when we’re young, we might prioritize Money over time, and as we age, the dynamic shifts. Retirement, an ever-evolving term, could mean lounging on a beach for some or starting a new venture for others.
For instance, the Center for Angel Entrepreneurship witnessed a surge in businesses initiated by those over 55 during the COVID era. While historical instances like McDonald’s showcase experienced individuals transitioning into entrepreneurship, in today’s age, retirement doesn’t equate to inactivity. Organizations like SCORE offer retired business executives opportunities to mentor, giving back to the community. Hence, retirement might involve pivoting and utilizing your skills in fresh, fulfilling avenues.
Incorporating Charity in Your Business Transition Strategy
How to Make an Impact and Leave a Legacy with Your Exit
The conversation around charitable giving, especially post-business sales, is multi-faceted and incredibly valuable. For business owners, there are both the tangible aspects of value Growth and continuity, as well as the more intangible, philanthropic side. It’s crucial to determine present business value, set financial targets, and bridge any existing gap. Beyond this, pre-sale tax mitigation strategies, and post-sale charitable intentions play a role. If a business and its owner have a defined mission around giving, mechanisms such as donor-advised funds can be set up even before retirement.
Other estate planning mechanisms also offer paths for philanthropy. One notable client, for instance, eyes an ESOP, or Employee Stock Ownership Plan, as he’s deeply committed to his company culture and annual charity contributions. The beauty of philanthropy lies in aligning with family on a unified mission of giving, ensuring a Legacy that lasts beyond the business.
Inside the ‘Business Transition Handbook’
How to Navigate Succession and Avoid Pitfalls
‘The Business Transition Handbook‘ captures a wealth of knowledge, drawing from over 25 years of my firsthand experiences, from serving as a CEO to navigating major M&A processes. It reflects on the complexities of exit planning and the myriad stories collected over 120 episodes of my podcast, “Succession Stories”. This handbook is not just a read but an interactive guide. Every chapter is designed around pitfalls to avoid and concludes with key takeaways and actionable plans.
To complement the book, especially for digital readers, there’s a downloadable toolkit on my website, that encapsulates all the exercises. While primarily targeting entrepreneurs approaching transition in the next 5-10 years, feedback suggests its value extends to budding entrepreneurs too. They gain insights into what drives long-term value in businesses. The goal? To equip business owners with the tools to circumnavigate common transition pitfalls and thrive.
If you’re an entrepreneur navigating the complexities of business transitions, don’t go at it alone. Our team at Prosperity Financial Group has the expertise and dedication to guide you every step of the way, from start-up to retirement. Let us help you pave a smoother path to your financial goals. Ready to embark on a successful transition journey? Get started with us today or call us at (925) 314-8500.
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