If you read the earlier posts in our three part series (post one, Stepping back; and post two, Avoiding pitfalls) you know it's critical to find a fair value for your business. If the selling price isn't where you want it to be, it's worth investing time and effort to make sure the final amount aligns with all the hard work you've done. Our second piece covered common pitfalls where succession planning often goes wrong and what can you do to avoid these mistakes.
And that brings us to part three: helping your legacy thrive. You've sold the business, identified your successor, and (hopefully) avoided any serious family drama. Now you're looking forward to a well-deserved rest, with a legacy that provides for you, for your children, and that leaves an indelible and positive mark on the business you built.
But how do you get from point A to point B? How do you ensure your legacy doesn't just start strong but has enough staying power to survive and thrive over time? It all starts with great help.
Selling your business is just the start
When it comes to selling your business, it's worth having help. The process of determining business value, finding a buyer (or naming a successor), and closing the deal often comes with massive stress. Some owners report panic attacks during the process, while others find it hard to slow down their frenetic pace even after the business is sold.
Just as it did when you were building your business, having the right team on your side can make the process easier. Consider the case of a business owner choosing to exit and sell the company to an investment firm. What happens if the buyers abruptly drop the value of their offer, or start stonewalling on specific conditions? What if they have a team of lawyers at their disposal, requesting meeting after meeting and document after document? If you’re still running your business, it's easy to get overwhelmed by the details and make a mistake that negatively impacts your legacy.
Backed by a team of trusted business advisors you're in a better position to ensure you get the value you deserve for your company, in turn laying the foundation for a long-term legacy. By letting experts in the field handle the back-and-forth between buyers, investors and even family members, you can reduce the stress of selling your business, while you focus on what matters: Determining exactly what you want your legacy to look like.
But this is just the beginning. Once the ink is dry and the deal is done, the real work begins.
How cash flow shifts after selling
When your business is operational, the cash flows from the company itself. Some owners choose to pay themselves a salary, while others leverage the revenue of the company where and when they need it. When it comes to your legacy, meanwhile, cash flow shifts significantly. Instead of taking a steady salary or having access to cash based on sales over time, the sale of your business often provides you with substantial amounts of cash — but only once.
As a result, your cash-flow function changes. Simply taking the money from your sale and putting it into a bank account won't be enough to provide for your legacy over time, while overzealous investing could leave you facing unexpected losses. To help manage your new cash-flow framework, it's worth connecting with an experienced trustee who can help you find the balance between spending, saving and leaving the legacy you want for your family.
How your priorities pivot after leaving
Leaving a business you've built from the ground up is never easy. As noted by the Harvard Business Review, this transition often comes with emotional fallout. While you've achieved the goal of running a successful business, making a great sale and (hopefully) leaving the company in the hands of someone who cares about what comes next, you're also in an entirely new position. What do you do with your time? What are your plans for the immediate future? For the long term?
To help navigate this pivoting of priorities, think about what succession means for you, rather than the business itself. The HBR piece recommends creating a six-month game plan for the immediate aftermath of selling your business that includes specific goals. For example, you might decide to take a long vacation, learn a new skill, or tackle a long-overdue project around your home. In practice, it doesn't matter what you choose; the first few months post-sale are all about finding out who you are without your business, and what you want moving forward.
For many business owners, this time lets them rediscover what they're passionate about. For some, it's community revitalization projects. For others, it's scholarship funds or support for the arts. Whatever your philanthropic intent, however, it's worth working with a team of advisors to help draft a clear statement of intent. Is your plan to make regular donations? To create a family foundation? To play an active role in the charity or group itself?
Depending on which framework best meets your new priorities, you'll need different legacy structures. Simple donations can be scheduled as needed, while the creation of a foundation requires a more robust effort to determine who can make distribution decisions — is it just you and your spouse? Your children? Their children? More extended family? Trusted experts in your corner can help design funding and distribution structures that help your legacy thrive over the long term.
How family dynamics fluctuate after succession
As mentioned in both part one and part two of our post-pandemic succession series, one of the most challenging aspects of selling your business is navigating family dynamics.
Consider a situation where two of three children want to be involved with the business moving forward, but the third does not. Should the third be bought out despite their lack of interest, or not? These kinds of questions can cause significant family strife, especially if family members feel they're not being fairly treated. This isn't simply a thought exercise. As noted by Inc., family business McCain Foods experienced a massive shakeup in 1993 when succession planning started.
Originally founded — and co-CEO'd — by brothers Harrison and Wallace McCain in 1957, McCain Foods sold the world's first frozen French fries and went on to land contracts with fast-food giant McDonald's. Everything was going to plan until 1993, when Wallace pushed for his son to become CEO despite family resistance. It took a year of infighting and litigation before the dust settled: Wallace was out of the company, and he didn't reconcile with Harrison for decades.
The same can happen to any business when family dynamics come into play. Some family members may be hoping to take over the business, while others want a larger role but not all the responsibility of ownership. Some see the value in holding the company as an asset, and others want to see a total sale with the proceeds distributed evenly.
As a result, it's worth partnering with legacy professionals to help evaluate your options and determine what works best for your family. For example, you might decide to create a trust that allows your children or grandchildren to access funds for specific purposes. But creating an effective trust is complicated. Too broad, and family members may rely on trust-fund distributions rather than finding their own path to financial security. Too narrow, and it becomes almost impossible for family members to access money when they need it.
Creating and articulating a detailed and in-depth statement of wealth transfer intent (SOWTI) with the advice of industry experts can help streamline the process of succession planning and reduce the risk of family infighting over assets.
How a team of trusted advisors can help manage everything that comes after
There are two components to a successful succession-planning partnership: expertise and trust. At California Bank & Trust, expertise runs deep. Our credentialed team of advisers can help you develop a wealth management plan that's customized to meet your legacy objectives, risk tolerances and both your short- and long-term financing needs.
We also know the value of trust. We're committed to building relationships with clients that last decades — from initial business purchasing to business loans and capital management, we've earned the trust of clients across California who know that we understand their unique business challenges and can help meet their specific business needs.
Succession planning with CB&T gives us the opportunity to extend that trust even further and build even stronger relationships that allow owners to leverage our in-depth knowledge of their existing operations. Together, we can help you create business succession plans that don't simply address the hard numbers of sales, spending and liquidity but help you navigate the emotional impacts of this significant life change.
Having the right team on your side can help your legacy thrive in four key areas:
Ownership transitions
What happens after you leave? Who takes over? When? What conditions are in place, and what does this mean for any other partners or stakeholders? CB&T advisers can help walk you through the complicated process of succession planning to ensure you're equipped with all the information you need to make an informed decision.
For example, you might choose to sell your business to several family members, but rather than looking for payment upfront, you opt for payments over time, based on business revenue. While this can be an effective model to help defray up-front costs, it also requires conditions to ensure that payment happens within a specific timeframe, or the business reverts to your ownership.
Wealth management
Once you leave your business and get paid for the sale, liquidity management becomes critical. Our experts can help craft an investment plan that puts your money to work for you — in the way that works best for you.
Whether this means creating a low-risk, steady-performance strategy, opting for a mix of low- and mid-return investments, or providing more direct control over how your money is managed, we're here to do what works for you. It's your legacy — we want to see it thrive.
Personal growth
Our teams are also here to facilitate your personal growth after leaving the business behind. This could mean taking care of your money while you take a much-needed break and then helping you create a philanthropic foundation that supports the causes or charities you're passionate about. From donations to grants to disbursements and community investments, we have the knowledge and experience to underpin your plans for personal growth.
Family security
Successful owners often spend years giving all their time and effort to the business to provide for their families. And when it's time for succession, family is also the first thing on their minds. How do they limit the risk of family infighting? How do they ensure family members are provided for while still leaving room for them to walk their own path? How do they rest easy knowing that children, grandchildren, and other close family members can leverage their legacy to stay financially secure?
It's no easy task, but with CB&T in your corner, you've got decades of experience at your disposal to create a succession plan that both benefits family members and builds a legacy that stands the test of time.
Considering a post-pandemic succession plan? Start with CB&T. From selling your business to navigating pitfalls and streamlining succession planning, we're here to help ensure your legacy lasts.