Tag Archive: succession_planning

Managing the Emotional Toll of Selling Your Small Business

Managing the Emotional Toll of Selling Your Small BusinessManaging the Emotional Toll of Selling Your Small Business
Managing the Emotional Toll of Selling Your Small Business. Don’t let your emotions–sorrow, anger, or a sense of loss–hijack the sale of your small business. Here are tips on keeping a level head.

Selling the small business you’ve built over many years, or even decades, is never easy. But for many entrepreneurs, the hardest part isn’t preparing the business for the marketplace or finding the right time to exit.

As a business owner, you have invested a significant portion of your life in your enterprise. Over time, you likely have developed a personal connection to your company and for better or worse, your small business has become an important part of your daily life.

So when it’s time to say goodbye, it can feel like you are losing a member of the family. Sorrow, anger, a sense of loss–entrepreneurs experience a wide range of emotions during the sale process. And if those emotions are left unchecked, they can have a real dollar impact on the outcome of your business sale. Managing the Emotional Toll of Selling Your Small Business

Although it’s natural to feel sentimental or even a little sad, you can’t let emotions like anger and defensiveness alienate prospective buyers or dictate the terms of the sale. As much as possible, you need to find ways to remain objective, creating space between your emotions and your decision-making routines before, during and after the sale.

Before the Sale

Emotional baggage jeopardizes the profitable and timely sale of your small business. As a result, one of the most important things you can do to manage your emotions is to prepare a comprehensive exit strategy long before you are ready to list your company in the business-for-sale marketplace.

By planning your exit in advance, you will be more emotionally prepared for the transition when it actually occurs. Your family members should also be involved in the exit planning process since the business has likely been a major part of their lives and they may need time to adjust to the idea of someone else owning your company. Managing the Emotional Toll of Selling Your Small Business

At some point in the exit planning process, you will need to seriously consider what you will do after the sale has been finalized. Sellers who lack a solid plan for the next stage of life find it difficult to let go of their businesses and are more likely to allow personal emotions to hijack the process.

During the Sale

During the sale process, it’s critical to remain focused on operating your business until it has been legally transferred to the new owner(s) since deals can suddenly evaporate during due diligence or other stages of the process. Managing the Emotional Toll of Selling Your Small Business

But to commit time and energy to running your business, you will likely need to rely on the assistance of third-party professionals (e.g. brokers, attorneys, accountants, etc.) for various seller functions. The added benefit of outsourcing specific seller functions is that professionals bring objectivity to the process so that interactions with prospective buyers are based on facts, not emotions.

It can also be useful to confidentially consult with peers during the sale process. Rather than wrestling with your emotions on your own, consult with trusted members of your peer network and seek advice about what they experienced during the sale of their businesses.

Also, you should think carefully about what role you may be willing to play during the transition of your business to a new owner. Many buyers desire that the previous owner remain with the business, on a consulting basis, for three to six months after the transaction, to help ease the transition. Managing the Emotional Toll of Selling Your Small Business

Make sure that you’re emotionally prepared to play this role in a professional manner. It is important to recognize that key decisions will no longer be your own and that you may not agree with all of the changes the new owner is making.

After the Sale

Business owners are frequently flooded with emotions after they have finalized the sale and transitioned out of the business. Now that they finally have time to reflect, sellers can feel a sense of loss, especially if they developed close friendships with their employees.

But unless the new owner has asked for your advice, it’s a bad idea to check in on the business after the sale has been completed and you’ve moved on. It’s likely that the buyer will have made changes in the business and it can be difficult to accept the fact that someone else is calling the shots in the company you built. Similarly, try to avoid talking about the business with your former employees in social situations since little good can come from second-guessing the new owner in front of current employees. Managing the Emotional Toll of Selling Your Small Business

Although the emotions you may be feeling are real, the bottom line is that you and your business have moved on. Instead of looking backward, it’s time for both you and the business to move forward and embrace the next stage of life. Managing the Emotional Toll of Selling Your Small Business

Protecting Your Human Capital: Is ‘Key Person’ Insurance Right for Your Small Business?

Protecting Your Human Capital: Is ‘Key Person’ Insurance Right for Your Small Business?By Susan Caminiti.

When Micron Technology CEO Steve Appleton, 51, died in a plane crash on Feb. 3, the company not only lost its long-time leader, it experienced a stock price drop amid concerns about who would take the helm at the memory chip maker.

The company’s board of directors swiftly announced that COO D. Mark Durcan would replace Appleton. But what if—as is so often the case with small businesses—there isn’t another qualified person waiting in the wings should tragedy strike at the top?

If that’s the case, so-called key person insurance can help soften the blow. This type of policy protects a company in case of an untimely death of a critical manager or employee; in the case of a small business, that usually means the owner or founder and a few top people. The company is the beneficiary of the policy and pays the premiums, so should this key person die, the business gets the insurance proceeds.

“The purpose of key person insurance is to help the company survive the blow of losing the individual who makes the business work,” says Loretta L. Worters, vice president of the Insurance Information Institute based in New York City. “The company can use the proceeds for expenses until it can find a replacement person, or if necessary, buy out the heirs of the deceased. It gives a company breathing room to make the next step when they’ve lost this key person.”

PQ_KeyMan.jpgAccording to Worters, a small business needs key person coverage when:

The business is a professional services firm and key employees can’t be replaced right away. For example, a law firm or medical office cannot replace an experienced attorney or doctor with a recent graduate.

The business cannot continue in the event of a loss of a particular person. Worters cites producer and director Tyler Perry of Tyler Perry Productions. “Without him,” she says, “there is no business.”

Business continuity is a concern. If there are partners in a company and one dies, the deceased’s shares will likely go to his or her heirs. Do they know the business? Are they interested in being involved in running the company? If not, the proceeds from key person insurance can be used to buy out their stake in the company.

Future financing is possible. Venture capitalists, banks, and other lenders often require key person insurance for start-up companies. In the event of a death, the insurance proceeds can be arranged to go directly to the venture capitalists to protect their investment.

The business owners are between the ages of 30 and 55. It’s human nature for young people to ignore their mortality and this lack of planning can hurt a company in the case of a tragedy, Worters says. Further, she adds, “Entrepreneurs are, by nature, risk-takers.” For instance, Appleton of Micron, was piloting a small experimental plane when he crashed and died—and had been in previous plane crashes as well. (The company’s financial filings with the SEC make no mention of key person insurance for Appleton.)

Despite all these reasons, less than one quarter of small business owners surveyed by the National Association of Insurance Commissioners have key person policies in place. Yet 71 percent say that they are “very dependent” on one or two key people for their company’s success. This disconnect stems from a belief that the insurance is prohibitively expensive or difficult to obtain. Not so, says Robert Garner, executive vice president of wealth management at CBIZ Insurance Services in Baltimore. “Most insurance companies will cover one to two times a person’s annual compensation,” he says.

The majority of key person policies are basic, inexpensive term coverage that spans the numbers of years until the person reaches retirement age—65 in most companies. The actual cost, says Garner, depends on the health, age, lifestyle (does the person like to fly small, experimental planes or bungee jump, for instance) and medical history of the person being insured. Permanent insurance—or a policy that accumulates a cash value—is more expensive to obtain, but allows a company to borrow from it with tax-free loans.

Carl Belt Jr., president of The Belt Group Inc., a construction company based in Cumberland, Maryland, has key person insurance policies for 10 employees and shareholders. The first policy was taken out on his father, who started the company in 1962. “By the time my Dad died in the 1970s, I was running the company and the proceeds from the insurance helped me buy out his stake in the business,” Belt recalls. “Basically, I was paying my mother for his share. It would have been difficult for me to do that without the insurance.”

Over the years, Belt’s business has expanded to about 250 employees and now includes roofing and paving businesses. He’s also taken on several shareholders. With nearly $60 million a year in revenues, he says key person insurance for his CFO, head estimator, and the heads of his roofing and paving businesses, seemed like a good idea. “If anything happened to these people it would affect the business, no doubt,” he says.

Belt says in the event of a death, proceeds from the policies would be used to buy out the ownership stake of his shareholders, and then finance the search for a replacement. Since he elected to buy policies that accumulate a cash value that he can tap into if needed, he views the insurance as a sort of “forced savings account.” Still he says, “You never want to think about anything bad happening to these people you depend on, but you have to be ready just in case.”

You Inherited a Small Business—Now What?

You Inherited a Small Business—Now What?by Erin McDermott.

Jim Angleton Jr. started attending his father’s company meetings when he was 7 years old. He watched and learned as the venture-capital firm invested in dozens of small companies.

His dad died a few years ago. Though the two had what Angleton described as “very painful, heartfelt discussions” with an estate planner about what the father wanted for the future of his company after he died, crucial decisions needed to made shortly after he passed—and soon.

“There was a seven-figure portfolio, several employees, and about 30 days to decide what to do without my dad,” said Angleton, now 56. “I still miss him so badly.”

Anyone who’s been through the death of a close family member knows how emotionally difficult the days and weeks that follow can be. But when small-business owners die, there’s also a complicated web of issues for their survivors to navigate, especially for those designated to inherit their company.

It’s a gesture of profound trust for person to put the result of their life’s work in your hands once they’re gone. For the new proprietor, there are important immediate decisions to be made regarding banking, licensing, estate taxes, insurance, employees, and more. Eventually, the bottom line becomes clear: Do you want to give it a go—or should you sell?

Often, the answer can depend on how much planning has been done ahead of time.

Many small-business owners get so caught up in keeping their company afloat that they don’t take the time to think about planning for their inevitable exit, says John M. Masnica, an associate attorney at San Diego Law Firm and a business consultant at its reThink Consulting. He advises his clients to not leave it all up to their survivors, but to make these decisions before tragedy strikes.

And then there are the family issues.

“Parents often don’t talk about their plan, or not very thoroughly,” says John O’Grady, a San Francisco estate-planning lawyer. “Kids are in the lawyer’s office after the funeral, they’ve never run a business, never hired an accountant or a lawyer or a real-estate agent, and they’re still grieving. When you add the financial and legal issues involved, they get overwhelmed very easily.”

Uncomfortable as it may be, O’Grady says it’s better to have all of the discussions and, sometimes, fights while the business owner is still alive, particularly when a whole family is involved. “If everyone has their views heard, they’re more likely to buy in to the plan, even if the parents adopt some other plan,” he says. “It’s the kid who doesn’t know, or doesn’t want to know—who will wake up outraged one day about being left in the dark and go to court.”

As the price of real estate and stocks has risen over the past 30 years, there’s more for inheritors to fight over. Within many families, long-festering resentments often surface when decisions are being made about money and responsibilities, making the prospect of discussing your financial wishes that much easier to put off. “It’s one of the most sobering talks you can have, andone very few people do,” says Angleton, now chief executive of Miami-based Aegis FinServ, a financial services company.

In his case, with his mother and sister’s blessing, he decided to put his father’s business up for sale, with the help of a family friend. When it sold, he negotiated to keep all of the employees on board with their benefits intact, and even added in a bonus as thanks from his family as they exited.

PQ_Bequeathed.jpgHow can you decide? Here is some advice from the pros.

Do a self-analysis. Carl Doerksen, director of corporate development at Generational Equity, an mergers and acquisitions advisory firm in Dallas, says you should start by asking: Are you qualified to run the business? Even if you’re familiar with the field, do you have the skill set needed to oversee it? Most importantly, do you have the passion for the work? For someone thrust into the thick of a new venture, the responsibilities and risks of a business means your life will change dramatically.

Evaluate the business. What are the opportunities and challenges? Can you handle the risk? Is it profitable? Is there potential for growth? Does the business have enough income for you to pay yourself a salary?

Assess your team. If a business is left to you and other members of your family, can you work with them? If there’s a partner or an employee who shares in the inheritance, do you feel you can work together? (A favorite saying of O’Grady’s: “If you want to get to know someone, try owning a business with them.”)

Keep your emotions under control. “Whoever is in the lead needs to take command of their emotions and think with their head and not their heart,” says Angleton. “Sometimes you have to move very rapidly with these decisions and you need to think clearly.”

Think local. Does this business carry a lot of responsibility in its community? How would a sale affect the town and the employees? Is there a legacy that you strongly feel you need to uphold?

Put a value on it. What could the company command if it was put up for sale? Is that what you’d want to sell it for? Look at who’s left to manage the team if it’s not a one-man shop and ask: Can they take over in your absence? “That’s what buyers are looking at,” says Doerksen.

Ask an expert. Talk to an outside accountant, tax adviser or a business consultant—someone who isn’t a member of the family and doesn’t work for the business. “My father gave me the best advice when it came to this: Pay for the best in the business for consultants. Failure will cost you triple,” says Angleton. “You will be answering to the state, the IRS, Social Security, charities who had pledges made to them. You’ll go nuts trying to decipher it all and unwind it on your own.”

If this business isn’t your passion, you owe it to your new employees and the person you inherited it from to sell it, says Doerksen.

And when it’s all over…

Look to your own future. O’Grady tells his clients to start the conversation about bequeathing the business with their heirs now. Conflicts will inevitably arise, but be careful and develop a clear plan. “They can fight about it now, with the older generation’s input, or they can fight about it later, when many end up in court,” he says.

Ever since his experience handling his father’s business transition, Angleton says he keeps a close watch on estate-tax laws and revises his will periodically. He even records a version on video.

“Words mean different things, so I discuss everything in detail, like who to contact. Certain words can be translated otherwise by an outsider,” he says. “I wanted no mistakes at all.”

You Inherited a Small Business—Now What?

by Erin McDermott.

Jim Angleton Jr. started attending his father’s company meetings when he was 7 years old. He watched and learned as the venture-capital firm invested in dozens of small companies.

His dad died a few years ago. Though the two had what Angleton described as “very painful, heartfelt discussions” with an estate planner about what the father wanted for the future of his company after he died, crucial decisions needed to made shortly after he passed—and soon.

“There was a seven-figure portfolio, several employees, and about 30 days to decide what to do without my dad,” said Angleton, now 56. “I still miss him so badly.”

Anyone who’s been through the death of a close family member knows how emotionally difficult the days and weeks that follow can be. But when small-business owners die, there’s also a complicated web of issues for their survivors to navigate, especially for those designated to inherit their company.

It’s a gesture of profound trust for person to put the result of their life’s work in your hands once they’re gone. For the new proprietor, there are important immediate decisions to be made regarding banking, licensing, estate taxes, insurance, employees, and more. Eventually, the bottom line becomes clear: Do you want to give it a go—or should you sell?

Often, the answer can depend on how much planning has been done ahead of time.

Many small-business owners get so caught up in keeping their company afloat that they don’t take the time to think about planning for their inevitable exit, says John M. Masnica, an associate attorney at San Diego Law Firm and a business consultant at its reThink Consulting. He advises his clients to not leave it all up to their survivors, but to make these decisions before tragedy strikes.

And then there are the family issues.

“Parents often don’t talk about their plan, or not very thoroughly,” says John O’Grady, a San Francisco estate-planning lawyer. “Kids are in the lawyer’s office after the funeral, they’ve never run a business, never hired an accountant or a lawyer or a real-estate agent, and they’re still grieving. When you add the financial and legal issues involved, they get overwhelmed very easily.”

Uncomfortable as it may be, O’Grady says it’s better to have all of the discussions and, sometimes, fights while the business owner is still alive, particularly when a whole family is involved. “If everyone has their views heard, they’re more likely to buy in to the plan, even if the parents adopt some other plan,” he says. “It’s the kid who doesn’t know, or doesn’t want to know—who will wake up outraged one day about being left in the dark and go to court.”

As the price of real estate and stocks has risen over the past 30 years, there’s more for inheritors to fight over. Within many families, long-festering resentments often surface when decisions are being made about money and responsibilities, making the prospect of discussing your financial wishes that much easier to put off. “It’s one of the most sobering talks you can have, andone very few people do,” says Angleton, now chief executive of Miami-based Aegis FinServ, a financial services company.

In his case, with his mother and sister’s blessing, he decided to put his father’s business up for sale, with the help of a family friend. When it sold, he negotiated to keep all of the employees on board with their benefits intact, and even added in a bonus as thanks from his family as they exited.

PQ_Bequeathed.jpgHow can you decide? Here is some advice from the pros.

Do a self-analysis. Carl Doerksen, director of corporate development at Generational Equity, an mergers and acquisitions advisory firm in Dallas, says you should start by asking: Are you qualified to run the business? Even if you’re familiar with the field, do you have the skill set needed to oversee it? Most importantly, do you have the passion for the work? For someone thrust into the thick of a new venture, the responsibilities and risks of a business means your life will change dramatically.

Evaluate the business. What are the opportunities and challenges? Can you handle the risk? Is it profitable? Is there potential for growth? Does the business have enough income for you to pay yourself a salary?

Assess your team. If a business is left to you and other members of your family, can you work with them? If there’s a partner or an employee who shares in the inheritance, do you feel you can work together? (A favorite saying of O’Grady’s: “If you want to get to know someone, try owning a business with them.”)

Keep your emotions under control. “Whoever is in the lead needs to take command of their emotions and think with their head and not their heart,” says Angleton. “Sometimes you have to move very rapidly with these decisions and you need to think clearly.”

Think local. Does this business carry a lot of responsibility in its community? How would a sale affect the town and the employees? Is there a legacy that you strongly feel you need to uphold?