At age 68, Richard W. Hayman is enjoying his retirement from business ownership. But 13 years after selling his family business and transitioning his role—from CEO to advisor, to consultant and finally to retiree—he still misses being in control. He blames this on his “entrepreneurial spirit.”
It was that same spirit and drive that turned his career exit plan in 1989 into a decade-long journey to grow, transform and increase the value of Hayman Systems—his family’s Washington D.C.-based cash register manufacturing and distribution company—in preparation for a 1999 sale.
“In 10 years we went from being an old, stodgy register company with a good record to a growing software company with great potential,” Hayman says. “Then I sold the company. We made a plan and executed it—it worked out perfectly.”
After the sale, he spent two years in an advisory role for the acquiring company and explored other small business ventures before retiring. Today, Hayman is an example of how careful planning can help you achieve professional and personal goals during the transition phase of your business.
Ask the right questions
Don Matheson, a North Carolina-based independent management consultant and CEO of NorthStar Management, specializes in small business transition planning, including strategies to reduce overhead costs and improve cash flow. He explains that owners typically make transitions based on financial concerns about market conditions, competition, funding, the viability of a product or service, or emotional concerns about family assets, reputation or personal needs.
Regardless of motivation, once the need for a transition becomes reality, Matheson says you should ask yourself a few important questions:
- What are the goals for you and your family?
- What are the goals of your company?
- What do you want to happen to your business when you are no longer involved?
From there, you can think about specifics, including:
- How much control and decision-making power do you want moving forward?
- Who is your successor (if you are passing on the business)?
- What is the current and potential value of your business?
- What is the state of the economy and your industry specifically?
How will a change impact your company culture and employees?
Asking the right questions is critical, but so is early planning. Matheson recommends owners start making exit plans at least 3 to 5 years prior to the transition.
“The earlier an owner starts the process, the more control they will have over it,” he says. “More time means more in-depth thought, which means better decisions and, ultimately, better outcomes.”
As part of transition planning, you must consider all the exit options and how they will impact your life after ownership. For example, if a family member takes over the business, you likely will have a larger role than if you sell to an independent third party. Transition options include:
- Passing on the business to a family member or employee
- Pursuing a management buy-out
- Selling to a competitor, investor or equity firm
Liquidating the company
Forming a transition team
Having a wealth of knowledge about economic trends, market conditions and the real market value of your company also are essential to forming a strong exit plan. Matheson recommends forming a trusted, discrete transition team that includes financial advisors, consultants, accountants, lawyers, insurance agents and marketing experts.
“The idea is to generate as many ideas as possible so you discuss and develop formal and informal plans, as well as a map for the future,” Matheson says.
A last key step for owners is understanding personal finances—particularly your 401(k)— and getting your finances and bookkeeping in place. This paid off significantly for Hayman.
“Once the sale was lined up, we had all our paperwork in order, including years of certified, audited financial statements,” Hayman says. “We went from offer to closing in less than 90 days.”