Vail Chamber: Do you have an owner succession plan for your Vail Valley business? (column)
Every successful business must eventually face the question: What will happen to my business when I become disabled, retire or die? Sooner or later, one needs to identify someone to which to transfer or sell your ownership interest: co-owners, key employees, family members or an outside party. Without a succession plan, the business may need to be liquidated.
One of the first questions to be addressed is: Is there a successor readily available to run your business? If not, then the business may fail. You might look among co-owners, family and key employees for candidates. It may be necessary to train new management, helping them develop skills or bring in talent. If you sell to an outside party, then that party may provide their own management team.
If there are co-owners, the co-owners may wish to keep ownership limited to a select group. One way to do this is for the owners to enter into a buy-sell agreement. A buy-sell agreement is a legally binding contract in which the owners establish the terms and conditions of a future sale or buyback of a departing owner’s share of the business. Specifically, buy-sells control when owners can sell their interests and who buys an owner’s interest and at what price.
Keeping the business in the family can present many issues that may contribute to the success or failure of the business as it is transferred or sold to family. Do you want to sell to family members, make a gift or bequests of interests or some combination of these? These scenarios are somewhat complicated. The most appropriate manner is sales to family members can utilize buy-sell agreements and installment sales. Installment sales allow family members to make payments over time.
There may be key employees working for the business who provide some unique skills and value to the business and who have an interest in owning the business. You can sell the business to the employees utilizing a buy-sell agreement or installment sales. A partial owner may sell his or her position to key employees. A bit more complex is a business can be sold to an employee stock ownership plan, a tax-favored retirement plan for employees.
In some situations, succession is not practical using transfers to co-owners, family and key employees. The desire could be to obtain highest possible price for the sale. In that case, selling to an outside party is the answer.
If you are thinking of having a succession plan, then here are key considerations:
• Know yourself: Are you ready to put your business in someone else’s hands?
• Know your objectives: Define your objectives. There may be conflicts among these objectives.
• Plan ahead: No business is perfect. Each will require work to prepare for succession or an exit. Develop your plan three to five years ahead of implementation.
• Know when to go: When things are going well, that is the best time to sell.
• Understand value: The value of your business depends on various factors specific to your type of business, market and economy as a whole. Understand those factors when planning.
• Get your house in order: Address any risks and have quality financial information.
• Know your buyer: Do your own due diligence.
• Change is never easy: Nor is it avoidable. Address the issues as best you can or with a financial advisor. Regardless of succession or exit considerations, taking the planning actions will help accomplish the end result.
Having an exit strategy is crucial to business sustainability and, not to mention, peace of mind. I hope when you finish reading this, snow has happened.
Michael Staughton is the owner of Slope Enterprises, which operates the restaurants Los Amigos and Russell’s, both located in Vail Village. He is a board member for the Vail Chamber & Business Association. The Vail Chamber & Business Association is a business advocacy group in Vail and a communications outlet for businesses that want to have a voice in community affairs. For more information, call 970-477-0075 or email firstname.lastname@example.org.
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