At some point, every private company owner needs to address their transfer strategy. It's often the largest decision you'll make about your business as well as the largest transaction you'll ever have to address.
Most owners are focused on the valuation of the business when contemplating their exit. This is a very normal and common consideration. However, when we advise companies in this area we don’t start with valuation, because valuation is directly affected by the motives of the owners of the business. This means that the owner needs to understand their motives up front.
The reason you need to consider your motives first is that upon closer examination, you may have several motives related to your transfer strategy. In fact, our experience shows that most owners do not have the singular motive of maximizing the cash that they can get as part of their exit. Most have additional motives such as minimizing taxes, taking care of key employees, continuing the legacy of the business, or providing an opportunity for their next generation family members.
Once you're clear on your motives, the transfer strategy can be arranged to address the things that are important to you beyond financial gains. It's important to understand that some tradeoffs may be necessary in order to meet all the objectives of the transfer. The good news is that private company transfer strategies offer significant flexibility to meet all of your objectives. These could involve complex transfers involving ESOPs, gifting strategies, or deferred compensation arrangements, just to name a few.
The transaction structures are varied and can be tailored to the circumstances. The most important thing is to recognize that your motives matter. Make sure you're clear on those motives as the first step in the process to determine your transfer strategy.