Forgive me, but after three postings on this subject in which I have invoked metaphors ranging from Monopoly to Cinderella, I can no longer resist the need to appease my inner sportswriter. The transition from your direction of the business to that of your successor is essentially a handoff: Nobody pays attention when you get it right, but screw it up and it’ll be the headline.
No matter how many hours you (the quarterback) and your successor (the running back) have logged studying in the shadows of the film room or rehearsing in the obliterating heat of the practice field, a fumble on the one motion so ordinary that we often forget it’s even a part of the game will utterly negate every bead of sweat shed, every bruise earned, every moment you’ve committed to transforming your business into a contender. Teams and businesses alike struggle to overcome such an elementary mistake.
And now to answer an important question posed by what is likely becoming a convoluted analogy: If the perfect handoff should be invisible, then how do we know what the perfect handoff should look like? Faced with such an obvious paradox I can only scratch my head, shift uncomfortably in my seat, and quietly grumble that there was a damn good reason I became a lawyer rather than an English or philosophy professor.
What I do know is that part of an effective transition is commissioning an independent and objective valuation of the business to guarantee that both you (the seller) and your successor (the buyer) are negotiating a fair price. You shouldn’t leave with anything less than you deserve, but at the same time you shouldn’t foster resentment by low-balling your successor. My beloved Orioles have languished for 14 years in part for that very reason with many a talented player skipping town for clubs willing to pay at market value (or market-shattering value, in the case of the Yankees). Don’t “Peter Angelos” your business at the last minute here; make sure that the next owner has enough cashflow to both pay you and make his payroll.
Once you’ve settled the finer points, like terms for custody of the water cooler and similar vital office accoutrements, each party should do their due diligence and have a purchase agreement crafted. Life and disability insurance for both you and your successor should be included in the terms of agreement to help ease any financial turmoil for the business if either of you should, heaven forbid, become incapacitated or deceased.
There are numerous other details but I expect you’d never forgive me if I turned an entry that lured you in with promises of amusing sports analogies into a soul-crushingly tiresome sermon on necessary and sufficient clauses in transition contracts. (Give me a call if that of level of boredom interests you because I have no desire to test the limits of what is not considered “cruel and unusual” punishment on my readership.)
The best advice I can give to someone in your position as the seller is to invest a few more dollars into hiring professionals from multiple disciplines to ensure that your succession handoff proceeds blissfully without notice. Attorneys, valuators, financial advisors, and accountants have different titles for a reason; don’t assume that if you commit funds to just one of them that all of the demands made by the transition process will be satisfied.
If you need help finding a qualified attorney, I just might know one who can help. If you’re looking for another of those aforementioned handoff-professionals or have any other questions about business succession planning, drop us a line at at Facebook.com/FisherLawOffice, on Twitter @thefisherlawoffice, or at LinkedIn.com/in/FisherLawOffice.
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Alternatively, you can just click here for Part I, Part II, and Part III of our discussion on business succession strategy. Of course, the first step to creating such a successful strategy is subscribing to this blog (wink) so you’re kept apprised of further developments concerning Maryland business law, trusts, and estate planning.
As always, good luck and good hunting.