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Change is an inevitable aspect of every life cycle. With business, the final evolution can take a variety of forms. You may be ready to retire and pass the business on to a family member. Perhaps your goal is to sell to outside investors and use the proceeds as a retirement nest egg. Or the business may have declined so much that the best exit is a legal dissolution of your company. These tools and resources will help you manage the big decisions ahead for a successful transition.
The details of your exit plan have an impact on many stakeholders. These interested parties include the business owner’s spouse, children, company employees, and possibly business partners. Each of these groups has specific needs and expectations to consider as you prepare your Exit Plan.
We highly recommend that you include your business’s stakeholders in the planning process. By allowing them to make their needs known and considered in the process, it is more likely that all parties will accept the ultimate plan.
The business owner’s relationship with his family and the business is complicated and, in some cases, overlapping. Your spouse may or may not have worked in the business. As for your children, some may be actively involved in the business, have an investment in the company, or no involvement in the business at all. Each child in each of these situations has expectations from the business owner as he or she prepares his exit plan.
To promote the understanding of everyone’s expectations, we recommend a family meeting to discuss everyone’s concerns early in the exit planning process. In many families, this type of conversation is uncomfortable because conflicts between expectations can easily arise.
Before the family meeting happens, we recommend that you sit down with each of your family members. In these individual meetings, you can explain your goals and expectations for exiting the business, provide an overview of the exit planning process, and emphasize the need to consider everyone’s concerns. These discussions should be open and honest. By previewing the purpose of the family meeting, your family members will have time to think about what they want from the Exit Plan.
To increase the meeting’s effectiveness, you can give your family members an agenda for the meeting with bullet-pointed items to discuss. Some of the items to discuss during the family meeting include:
At the start of the family meeting, remind everyone present to respect each other’s ideas and feelings, and that the purpose of the meeting is to work toward mutually beneficial solutions that take everyone’s opinions into account.
If you anticipate a heated discussion, consider hiring an outside facilitator to chair the meeting.
Finally, take detailed notes during the meeting to compile each family member’s expectations.
The business owner’s relationship with his or her spouse changes significantly upon retirement. After spending the majority of your time working and little time at home with your spouse, you will suddenly have a lot of free time at home. This can be very stressful for both the retiring business owner and his or her spouse.
The spouse’s expectations for the business exit plan normally includes:
The needs and expectations of the spouse become even more complex when the spouse is not the mother or father of the business owner’s children (a second marriage).
As the business owner, your relationship with your children become very complex when they also work for your company. The owner is no longer simply a mother or father, they are also a boss, mentor, and possibly co-owners of the business. This relationship gets even more complex when more than one of the owner’s children works for the business.
The exit planning expectations of children working in the family business frequently include:
Over time, the business owner and their working children gradually adjust to their roles and balance the work and personal relationships. When the family begins discussing the business owner’s exit plans, this balance is thrown out the window and the uncertainty of the future will undoubtedly cause stress during this process, particularly for the children working in the business.
The expectations of the children not working in the owner’s business are often the most difficult to address:
The open discussion of these expectations while the business owner can manage the process will generally eliminate deep-seeded resentments from developing later.
Transitions in the ownership of a company create a period of instability for the employees. They often do not know what their future with the company will be, and competitors will recruit them to join their teams. This is especially true of non-owner management and salespeople. The loss of these key employees can negatively impact the value of the company and limit the number of potential buyers.
If you involve these important employees in the process, they are more likely to know what their future holds and to stick with the business owner or their heirs. For some companies, this process will not only look at ownership succession but also management succession. This is especially true when there are no children working for the company or they are not prepared to take over the management of the company. These key employees will be needed to train the next generation of management, so they must feel that they will be rewarded for their efforts.
If there are no children working in the company, management may have a desire to purchase the company and will want to discuss possible ways to do so.
The process previously discussed for the family meetings could also be used to get the input and expectations of the key employees in the exit planning process. Their participation in this process should reduce their insecurity about their future and will be more likely to stick with the company.
Dealing with partners and minority shareholders can be legally perilous. When there are multiple owners in the company, buy-sell agreements are highly recommended. If these agreements are funded with key employee insurance, exit plans can go very smoothly. If you are a majority shareholder and want to exit the company, you obviously want to maximize the value of your investment. However, you have a fiduciary responsibility to treat the minority shareholders fairly.
Good legal advice is necessary to navigate an exit strategy when dealing with partners and minority shareholders.
While the interests of the business owner is the primary concern in developing an exit plan, the concerns of others still exist and may negatively impact the future of the company or family unity.
Have questions about the exit planning process? Need to help figuring out how to plan for succession at your company? We can help. Give us a call or write to us over email today!
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