Sellers should look at alternatives

You must consider an alternative exit strategy, namely succession planning. With the sale of a business, sellers move into the next phase of their life to start new pursuits away from it.

In contrast, a succession plan for a seller means less time at the business, but not a complete separation. Successors can be beneficial to the seller because they are usually eager to make their mark on the business. Often, successors see current issues and upcoming trends more clearly than the outgoing owner does.

However, the greatest challenge might be finding the right successor. It starts with the outgoing owner figuring out what kind of person is best for the company. This is not an easy task.

The current owner’s next step is surveying the landscape within and outside the company. The prospective replacements talents not only need to be examined, but also their willingness to take the job.

Once the chosen candidate is identified, the owner needs to determine the additional skills the replacements need and devise a training plan to ensure development. When the successor is close to being ready, it is often a good idea to give the understudy a “dress rehearsal.”

For some owners, this can mean taking an extended vacation or beginning to work part time. With this exit strategy, while the outgoing owner is resolving some of his work-related issues, may also be creating some new problems.

For example, the existing owner needs to be aware of the sensitivities of those who were not chosen. These employees may choose to leave the company or become trouble-making malcontents.

This challenge can become even bigger when it comes to a family run businesses. Think how the decision will be compounded if the owner has two or more children involved in the business. The owner’s decision of who will take over the business is the easiest – if you can call it that.

Now comes the hard part. It's one thing to pass over a non-family member. It's another when you must choose one child over another. Regardless of which exit strategy path is followed, the decisions that are made can significantly affect both the business and the outgoing owner, so they need to consider all the consequences.

Finally, does the successor put any skin in the game or money down to show their true desire to be a business owner? Usually, the current owner knows how much the employees are compensated so they have an idea of how money a potential successor has.

Unfortunately, most successors do not have enough cash to save up.