Transitioning ownership in a private company is one of the most complex issues that an owner will face. The complexity begins with choosing the best transfer strategy for the company, which could mean an outside sale, a family transfer, a sale to employees or an ESOP, etc. The choices are numerous and each contains tradeoffs that are hard.
The second level of complexity presents itself in the owner’s financial and emotional readiness for the transition. The financial issues are more quantifiable with the right advice. But the biggest hurdle is the emotional issues related to letting go of the business or changing your role in it.
We find that emotional readiness is one of the biggest hurdles for an owner’s successful transition because the prospect of changing their role in the business is difficult. There are two reasons for this. First, most owners have an emotional attachment to the business that causes them to not want to let go of it. The business has become like one of their kids. Second, for many owners the business has become their identity and they have trouble envisioning their life outside of it.
Owners with a high degree of emotional readiness exhibit a handful of key characteristics:
- They are not intimately involved in the day-to-day running of the business. This does not mean that they are uninvolved but it does mean that they have developed their successor and management team so that they have the freedom to exit. This process does not happen overnight and takes thought and planning.
- They have a basic plan as to how they will spend their time outside of the business. Again, this does not happen overnight; it takes thought and effort over time. It is also something that can be accomplished in steps if the owner is successful in #1 above.
- They view the business as an investment that should provide a return instead of as a job. It requires discipline to step away from the business and look at it like other investments you may own. But looking at it this way allows an owner to begin to separate their identity from the business.
A lot has been written on this subject of emotional readiness; however, my conclusion is that there is no answer that is the same for two people. Each case is different because every owner is different. I have interviewed dozens of owners on this topic and have found a lot of variation in their responses, outcomes, and approach.
However, I did hear some common themes and lessons learned from the owners I spoke with. Here are a few recommendations that can improve your odds of being emotionally ready to transition your business:
- Allocate and invest time in this process long before you have to deal with it. The answers won’t come easily, but you can gain more clarity by asking yourself these difficult questions over a long period of time. However, don’t expect the answers to come quickly. Immerse yourself in the topic and available information so you can begin to process the issue.
- Hire advisors with the skills to take the journey with you. While transitions involve a lot of technical details, the more important issues are the soft, emotional ones. Find advisors who do this work and understand and appreciate its complexity.
- Talk to people who have walked in your shoes. I’ve learned more about this process by talking to people who have done it than by reading about or researching the issue. You won’t find one story that was the same, but you can gain a lot of insight the more people you talk to who have traveled this path.
When it comes to transitioning a business, many owners underestimate the emotional toll it can take. Being ready to hand over the reins requires a great deal of thought and reflection. But you don’t have to go it alone; talking to your advisors and others who’ve been through it before can provide a great deal of perspective and increase your odds of success.
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