Debbie’s business was a success, but along the way, she also suffered some health setbacks. By age 56, Debbie knew she didn’t want to continue running her business much longer. She hadn’t considered succession planning before, and always just assumed one of her employees might buy the business from her. But for what price?
Concerned she might frighten her employees if she talked openly about selling the business, Debbie decided to approach Dave, her first and longest-serving team member, in confidence. Dave joined Debbie’s firm soon after she started, working with Debbie to set up a billing and reporting system and eventually managing employee benefits and other HR duties. Dave was about 10 years younger than Debbie, with a wife and two young sons.
“Dave, I’ve been thinking a lot about the future of this company, and about the day when I need to transition the business to someone else,” Debbie started. Dave’s eyes widened. “You’ve been very loyal to me over the years, and when I think of someone who embodies our firm’s values, you are the first person I think of,” she added. “Would you be interested in taking over my business?” Debbie asked.
Dave paused. “Are you offering to sell the business to me?” he asked. Debbie nodded. “I know this is a bit of a surprise,” she said, “but I’ve been thinking about it a lot lately. You’ve learned almost every aspect of this business, and our clients know you and trust you. I could teach you anything else you might need to know,” she offered.
Dave took a breath and sat back in his chair. “But you are the face of this firm,” he said. “I’m fine managing the back office, but I don’t know if I could do what you do. Especially since I have young kids at home,” he added. “And what would it cost to buy the firm from you?” he asked.
“We would have to work that out,” Debbie said, “I don’t know the firm’s value right now, so I suppose we’ll have to get a valuation from an outside company. If you don’t want to take over consulting, though, maybe we could find someone else to take on those duties, while you keep doing what you’re doing. Don’t you think that could work?” she asked.
“I don’t know,” said Dave. “I’m honored that you would offer the company to me, and I’ll talk to my wife about it. But I’m not sure I’m the right person to take our company to the next level,” he said.
The next day, Dave was waiting for Debbie in her office when she arrived. “Did you talk to your wife about it?” Debbie asked, excited.
“I did,” said Dave, “and we decided that purchasing the company won’t work for us. We have a mortgage, two boys we want to send to college, plus we’re saving for our retirement. Taking out a loan to purchase the company from you would just put us into more debt. In addition, I don’t want to travel the way you do, so it would be difficult for me to give our clients the same level of attention that you give them now.”
Debbie sighed. “I understand, Dave,” she said. “I don’t want to close our firm – in part because I need the money for my retirement, but also because I don’t want to put our team out of work. But if you don’t want to buy the company, I’ll need to sell to an outside party. Another firm approached me recently about selling, but I just don’t know how to go about it. It’s overwhelming,” she added.
“In my experience, there’s more to selling a company than you might think,” Dave counseled. “In addition to understanding the value of our company, you need to consider your timing and the tax implications of selling, and you’ll need to understand how to invest the proceeds to fund your retirement. You also need to conduct due diligence to be sure the buyer and the deal are right for you. I would reach out to a financial advisor who has experience helping business owners structure a sale.”
“That’s good advice,” Debbie said. “It makes sense to get some help from someone who can show me a process to follow and coach me along the way. It also feels better not to have to do this by myself.”
Dave nodded. “I have a contact who may be able to help. I’ll introduce you and set up a meeting.”
Debbie felt a sense of relief. “Thanks, Dave,” she said. “I feel better already.”
This hypothetical scenario is intended for illustrative purposes only.