2/15/12

Till Death Do Us Part

Loving & Business (Part 8)



One of the toughest things in family businesses is having a viable exit strategy. Viable is the chosen term considering the impact on the principals, heirs and the company itself. What does life look like post-exit? How do you prepare for it? Can you really walk away? Why are you still worried?

Working with mostly family owned businesses, ranging in size from large enterprises to small Mom & Pop shops, it is perhaps one of the issues most frequently found on the back burner. If it is not a burning issue, it often is not top of the mind.

It is a little Machiavellian, but the best companies begin with the end in mind. If you know what you want to accomplish, planning for it is preparation, not cement. There will be events in the business that make you rethink what you want to have occur and must be agile enough to do the analysis and determine whether the new path is better than the ones set before. The preference is always to determine the outcome rather than have it happen to you.

Roland was always known to be ambitious, whatever goal was realized through hard work, determination and good planning. He applied the same methodology to his company and built a multi-faceted enterprise. Included in the businesses where he had controlling or 100% interest were banks, real estate companies, land holdings, a development company, a property management company, a technology company, a mortgage company, a title company, an insurance company, a call center company, two restaurants and a construction company. Many of these were held under a holding company where he was chairman of the board and several concerns he owned directly and completely. It was said that the companies where he was owner or heavily involved in were so extensive that he probably did not even know what all he owned. Within the employees, a number of family members headed up some of these companies and trusted friends and hand-picked employees the rest. Even though he had great people running most of these, being a bit of a control freak, he usually inserted himself in meetings and decisions. These were his babies. He had started with nothing and exceeded everything that anyone else had thought would be possible.

Roland did not marry until he was approaching the age when most people would retire. No heirs were produced from this marriage. He did have five sisters running some of the businesses and key operational roles, with some of their spouses employed as well. He did not see the spirit and drive in any of these. They were all worker bees, enjoying an employed role and some good investments, but had no real dream of ownership or empire building like he did. He had nieces and nephews but had never really taken the time to get to know them, even though they received generous gifts from him on special occasions.

He had put in place the mechanics to create a line of succession for leadership in each business, changing his mind frequently as evidenced by the virtual erasure marks. He had not created a successor for himself. The vision of his plan was to have the enterprise survive him and take on a life of its own. He saw a retirement that still allowed him to tinker and give advice and counsel, drawing on his experience, relationships and talent.

Finding no suitable heir to his own position he decided to open up the ownership through stock to limited investors, most who were working investors, people that had responsibility in the company and could drive key decisions for not only their part, but also as a member of the board. He hoped he would see leadership rise to the top.

One day out of the blue, a company with a lot of similarities sent a letter of intent wanting to open negotiations and due diligence to purchase the company and all entities. While this was not the original plan, analysis of this and other options quickly determined that this was the best way to accomplish his objectives. Since he still had controlling interest in each, he was able to bring the sale to closure.

Not all companies are so lucky as to have a buyer come forward or to have timing on their side. In companies where there is a small group of owners, one person may not have controlling interest. The best of these have a plan that has a buy out and valuation process for any owner who may leave the company voluntarily or involuntarily. The challenges are always in how the valuation process is preset and then executed as well as the ability to raise the funds to buy out the exiting owner. Key person life insurance often funds the buy-out in circumstances where death is the reason the owner is leaving.

So what is your plan? How will it be funded? What is the transition mechanism? Leaving these decisions until controlling circumstances take place often calls for the death of the company. Whether by change of business interests, divorce, death or anything else, have a strategy rather than waiting until death do us part.