Is It Time to Fire Yourself?

A successful company has effective leadership, a strong product line, robust sales, consistent systems, and quality of goods and services. When everything is working, the business also has a distinct and attractive corporate culture. Even if you built the firm from the ground up, when it's fully launched and profitable, it becomes its own entity. In financial terms, it becomes an asset. It is a thing that can be bought and sold and no longer relies on your continual involvement. All this is possible when you create a company with a legacy in mind.

When your company becomes an asset, you've reached Stage 7 of business growth, the Succession Stage. In order to build this kind of asset, you have been firing yourself for several years, continually moving upward, out of the tactical realm and into a strategic role. You have been delegating responsibilities. You have been creating strong management teams. You have stepped out of the day-to-day operation. But you have one more job to lose. It's time to fire yourself.

In order to fire yourself (without destroying the company you worked so hard to build,) you must have an exit strategy. In Stage 7, it's time to determine your next move for your business. No matter if you sell, bequeath, divest, or die, eventually, someone else will run this asset when you're gone.

When Is It Time to Go?

Are you ready to leave the business? Ask yourself about your next move in life. What do you want to do, even if no one pays you to do it? What hobbies, passions, or pursuits have you been putting off? What will you do if you no longer have to think about running this company? Bill Gates offers a great example of an owner in Stage 7. For decades he built and ran Microsoft as CEO. Eventually, he decided he liked the tech side more than the management side, so he stepped away from being CEO and made himself chief technology officer. But he wasn't done yet. Just a few years later, he fired himself from Microsoft completely, so he could work for his nonprofit foundation. Gates interacts with Microsoft in a shareholder capacity, but his attention is on his foundation.

Exit Strategies

When people start companies, they rarely think about exit strategies. After all, at the launch, the owner is worried about keeping the business afloat. They are doing everything they can to avoid exiting. But eventually, every founder or business owner will think about what happens to the organization when they leave. Can it survive? Can other people run it? Can it be sold or handed off to the next generation?

The beauty of a Stage 7 company is that its ability to succeed no longer resides with a founder or owner. That owner has built teams around them to take care of various tasks and responsibilities. I encourage entrepreneurs always to be "firing yourself upward," handing off jobs to others and firing yourself from more and more tasks as the enterprise grows and expands. Founders should strive to evolve into visionaries, CEOs, or orchestrators, leaving the day-to-day jobs for other talented people.

Invest in Experts

Most of us don't sell or transfer companies very often, so very few entrepreneurs are experts at selling firms. While it is easy to view consultant fees as an expense, when it comes to selling or transferring a business, the right experts can minimize risk and maximize the asking price. Good consultants are not cheap, but their recommendations can protect owners from legal and financial risks for you and future owners.

The Role of Business Valuations

We recommend getting business valuations in Stage 6 when you're first considering the salability of your company. But if you don't have an up-to-date valuation, now is the time to get one. Hire an experienced business valuation expert to assess the firm and determine the fair market value. Your valuation will provide an idea of how much the enterprise is worth "as is" but it may also provide pointers for improvements that will increase the value of the company.?Such experts may also advise on improving or reorganizing the company to increase its value to potential buyers or future owners.

Pristine Accounting

Legal teams and accounting firms examine your financial records during a sale or as part of a transfer of ownership. In this process, the financials are held to a very high standard; even minor errors or omissions can cause big problems. A reputable accounting firm with experience in business mergers, sales, and acquisitions will help your internal accounting team compile financial statements and documentation in sale-friendly formats. Accounting consultants will help the team create, modify, or clarify income statements and balance sheets, catch errors, and ensure financial records and documents are above reproach.

Retain Legal Counsel

Corporate law attorneys specializing in sales and acquisitions can handle legal or regulatory situations that may affect a potential sale or transfer. In addition, those same lawyers should be on hand to review contracts and agreements, such as leases and vendor contracts, to ensure they are transferable to a new owner.

Choose Your Succession Structure

There are many ways to hand off a business. A business consultant can help determine which type of sale or transfer offers you or your successor the most opportunity. We've listed the most common sale or transfer structures here.

Selling to a Private Equity Firm

These buyers usually have the financial resources and expertise to grow a business. However, a private equity firm may have a short-term investment horizon, which means they are focused on maximizing their return on investment rather than maintaining the long-term viability of a company.

Creating an ESOP

An employee stock ownership plan (ESOP) enables employees to purchase shares in the company over time. An employee ownership consultant may be required because the Employee Retirement Income Security Act (ERISA) of the Department of Labor and the IRS’s Internal Revenue Code section 404(a)(3) govern ESOPs, so deviations from the prescribed process, intentional or accidental, break federal laws.

Passing the Business on to Family Members

While it may seem simple to pass on the family business, it's important to formalize the process to address legal considerations and prevent anyone from contesting ownership. The transfer should be formally documented and detail valuation, taxes, and ownership structure.

Selling to a Competitor

Your business may have the most value to your competitors. These types of sales usually require the seller to agree to non-compete clauses, which may limit their ability to run businesses in the future.

The Joys of Stage 7

When a business owner has built their business methodically using the 7 Stages of Business Success, it's easier to remove themselves from critical roles at the right time, in the right way, with the maximum financial benefit. The business doesn’t suffer, profits continue to roll in, and the company continues to grow and be profitable under new ownership.

With proper planning, founders can be happy and proud of their success and well-positioned to exit without drama or unintended consequences. If you want to discuss options for your Stage 7 business, contact me , and let's start talking.

?

?