A traditional approach to exiting your business often means selling your business. However, selling your business might not make as much sense for you as transitioning away from the ownership of it.
This nuanced approach to “exiting” your business allows you to reap some benefits of maintaining “ownership” without everything that comes along with actually owning it.
Here at Consolidated Planning, we understand that exiting your business isn’t a one size fits all approach. With goals unique to your personal and professional life, we provide a process that provides the framework to uncover opportunities, maximize results, and put you on a solid path to achieving all that is important to you
In this article, we’ll help you understand why stepping away from your business might be right for you, how you find and keep your new business owner, and how this option can help preserve your business value and financial future.
Why Step Away From Your Business Instead of Selling It?
So, why would you choose to step away from your business rather than selling it? Wouldn’t selling your business give you the necessary funds to retire how you want to?
Not so fast.
When it comes to selling your business, there are many factors that go into determining its value and what sale price will give you enough cash flow after life as a business owner.
The option to step away from your livelihood rather than selling it altogether is for the business that is:
- Efficient
- Cash flow positive
- Worth more while you own it
Of course stepping away from your business means that you might have to give up something – like net cash flow, for example. BUT doing so will be well worth it in the long run because you will be passively earning income. And while that income might be a bit less than you earned while IN the business, you won’t be working. You’ll be at the beach, traveling the world, or simply just not being a business owner. Imagine that.
Step 1: Finding Your New Business Owner
Your first step to effectively step away from your business is to find your new business owner. This person has to think like you think and worry the way you worry. Yes, that might sound like a tall order but it’s entirely possible.
This new business owner either already exists internally or you will need to recruit them.
A Key Employee
This new business owner won’t just be any key employee. They will be your key employee that is capable of worrying like you do. With a key employee as your business owner, they are already in the business making this a desirable person to fill your role.
However, more often than not, business owners opt to recruit an existing CEO who has been where you are before.
This isn’t to say that your key employee(s) won’t play a major part in the success of the new business owner, but an existing CEO might be a better fit.
Regardless of the path you will choose to take, it’s a good idea to begin identifying and grooming your key employees for the future of your business. No matter what that will look like.
Existing CEO
Effectively stepping away from your business means not having to micromanage. No one likes this anyway and your new business owner certainly won’t.
Recruiting an existing CEO to run your business comes with its fair share of advantages. They are likely already used to worrying the way you worry each day. Not only do they already have the experience and focus, but they can likely bring scalability and growth to the business.
And remember, everything between revenue and expenses are profits. These profits will continue going to the actual owner regardless of your involvement.
Now, finding your new owner is just half the battle. Now, you need to ensure you can KEEP them.
Step 2: Keeping Your New Business Owner
Ensuring you can keep this new business owner is perhaps the only downside to not actually selling your business. We know business owners have far more worries than the average person and that worry doesn’t just go away because you’re not actively in your business.
While there are endless strategies to keep your new business owner, the most lucrative one is compensation. Shocking, right?
Compensate This Owner
While your “new” owner isn’t truly the owner, they want to (and should be) compensated like an owner. After all, your goal here is to effectively step away from your business and that means no longer worrying the way a business owner does.
Long-Term Incentives
As part of the compensation structure, long-term incentives should be calculated into this arrangement. When the company does well, the new owner does well and so forth. In order to step away and stay away, your new owner needs to be invested in the long-term outcome of your business.
In addition to compensation, it’s important that yourself and the new owner have an alignment of both business goals and the timeline.
By failing to adequately compensate your new business owner, you risk the reality of having to return to the business and find another new owner should they choose to leave. And if this new owner has been in place for several years, it’s likely you’re further removed from where the company stands today, making your job tougher than the first time around.
Effectively Stepping Away From Your Business Gives You More Options For Retirement
Deciding how to “exit” your business isn’t a decision that should be taken lightly. It’s important to fully know your options and their potential effects on your business and its value.
The goal with stepping away from your business is that it will have adapted, evolved and developed processes, without you.
When you can effectively step away from your business and make yourself inconsequential, you now have even more options when it comes to the next steps for your business. You can either continue earning more and more passive income as your retirement model or you can change your mind and choose to sell your business with its increased business value.
To learn how to better build your business value for your ultimate exit, talk with an experienced planning professional at Consolidated Planning.
2024-178903 Exp. 7/2026
Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.
This material contains the current opinions of Neal Brincefield and Consolidated Planning only. These are not the opinions of Park Avenue Securities, Guardian, or its subsidiaries.
