Handing Over The Keys To Your Company

ThinkstockPhotos-465328301Did you ever consider when it might be time to hand over the keys to your company, so to speak? Some owners have no exit plan and want to run the company indefinitely. Thus, they have given no real thought to doing anything but staying in business. Others have an objective they want to achieve and plan to then merge with or be acquired by another firm, or cashing out after that objective is achieved. Which of these two scenarios might fit you?

During the initial phase of a new company, usually all one wants to focus on is how to succeed, serve a need, make money, grow and survive. But after some period of time, owners should consider whether they want to do this indefinitely or have some exit plan and essentially hand over the keys in one form or another to someone else. There is nothing to preclude them from just making enough of a profit to run the business for as long as they are able. Indeed, most entrepreneurs do exactly that, earn a living from their business and when they can no longer do that, turn the key and lock the doors. But there is a better way.

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That is to capitalize on the value of the company that you created. To do this, you can either sell the business outright, which works best if it is profitable and growing, or arrange an internal buyout with your management team. The latter is easier to do if you have a reasonable, mature staff that, with a bit of business mentoring, can run the business on their own and pay you what the company is worth out of the internal cash flow of the business. They can be your family members, people already working for you or people you bring in who would welcome this opportunity. It is equivalent to handing the key to the store over to them and gifting them the company. They pay you nothing and after a few years, the company is theirs.

There are many ways to structure this, including receiving continued dividends, but the deal works like a mortgage on a house, until the last payment to the property is made, the bank (you) still owns title to the business. This helps to ensure the new owner/management team keeps their eyes on the ball and there is little incentive to siphon money funds from your repayment. The sooner that payment in full is made the sooner the business is theirs.

MORE: Exit smart: Get the best value for your company

Michael Neidle

Michael Neidle
Michael Neidle is president and CEO of Optimal Management, an advisor to staffing firm owners and managers.

Michael Neidle

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