The Next Step: Liquidity or Legacy?
- Keywords:
- growth
- talent
- succession planning
- the next step
In our discussions with clients and prospects, we try to encourage business owners to focus on where they are in the lifecycle of their business. Are they looking to grow the business, or are they at the point where they're looking to maximize value as part of an exit strategy?
“If you ask any middle-market business owner, the long-term goal is either: are you staying in, or are you selling?” says a food manufacturer company. “If you’re staying in, it’s how you transition the business to the second, third and fourth generations of the family. If you’re not of that mindset, are you positioning your business for sale at some point?”
Stepping away from running the business can take on several forms, from selling a minority interest, selling the company outright or implementing an employee stock ownership plan (ESOP). But there's a lot to consider when weighing your options. To start, it's a matter of determining which matters most to you: your legacy or maximizing liquidity? To figure that out, you'll have to answer some tough questions that you may not have previously asked.
Liquidity vs. legacy
If maximizing liquidity is your goal, a sale to a private equity firm or family office could make sense, given the currently frothy M&A environment. For many business owners—especially those who run family businesses—leaving a legacy is a prime concern along with financial considerations.
That legacy could range from leaving the company in the hands of the next generation to being remembered for your philanthropic endeavors. Leaving a legacy could also mean maintaining the corporate culture you’ve worked hard to create. In that case, an ESOP or a management buyout may be the appropriate option.
But whether maximizing liquidity or leaving a legacy is your goal, you have to be honest with yourself regarding whether the company is ready to make the transition. If an outright sale is your endgame, will you be getting the maximum value for your business? Or should you wait until you’ve executed a strategy that boosts your EBITDA?
We met with one company that was determined to implement an ESOP, but the owners concluded it didn’t have the right management team in place to take over the reins. The company decided to postpone the ESOP and devote the next five years to getting the right team in place, enabling a smoother transition and maximizing the value of the transaction.
Balancing act
Selling or otherwise relinquishing control of a family-run business in particular can be very emotional, since the business and family are so tightly intertwined. It's important to remember that as a business owner, you're a fiduciary to the people who work with and for you. These are people who support their families and pay their bills because of you, and you owe it to them to think about what will happen to them after you leave.
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Henry Munez
Henry Munez currently serves as Market Executive and Head of Diversified Industries Group of Illinois. He leads a team of bankers, covering middle market companies and private equity firms in the Midwest. In addition to his team's new business focus, Henry is responsible for the overall risk management and profitability of the team's growing client base. Prior to jo…
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In our discussions with clients and prospects, we try to encourage business owners to focus on where they are in the lifecycle of their business. Are they looking to grow the business, or are they at the point where they're looking to maximize value as part of an exit strategy?
“If you ask any middle-market business owner, the long-term goal is either: are you staying in, or are you selling?” says a food manufacturer company. “If you’re staying in, it’s how you transition the business to the second, third and fourth generations of the family. If you’re not of that mindset, are you positioning your business for sale at some point?”
Stepping away from running the business can take on several forms, from selling a minority interest, selling the company outright or implementing an employee stock ownership plan (ESOP). But there's a lot to consider when weighing your options. To start, it's a matter of determining which matters most to you: your legacy or maximizing liquidity? To figure that out, you'll have to answer some tough questions that you may not have previously asked.
Liquidity vs. legacy
If maximizing liquidity is your goal, a sale to a private equity firm or family office could make sense, given the currently frothy M&A environment. For many business owners—especially those who run family businesses—leaving a legacy is a prime concern along with financial considerations.
That legacy could range from leaving the company in the hands of the next generation to being remembered for your philanthropic endeavors. Leaving a legacy could also mean maintaining the corporate culture you’ve worked hard to create. In that case, an ESOP or a management buyout may be the appropriate option.
But whether maximizing liquidity or leaving a legacy is your goal, you have to be honest with yourself regarding whether the company is ready to make the transition. If an outright sale is your endgame, will you be getting the maximum value for your business? Or should you wait until you’ve executed a strategy that boosts your EBITDA?
We met with one company that was determined to implement an ESOP, but the owners concluded it didn’t have the right management team in place to take over the reins. The company decided to postpone the ESOP and devote the next five years to getting the right team in place, enabling a smoother transition and maximizing the value of the transaction.
Balancing act
Selling or otherwise relinquishing control of a family-run business in particular can be very emotional, since the business and family are so tightly intertwined. It's important to remember that as a business owner, you're a fiduciary to the people who work with and for you. These are people who support their families and pay their bills because of you, and you owe it to them to think about what will happen to them after you leave.
What to Read Next.
The Next Step: Are You Ready to Give It Up?
Henry Munez | October 11, 2018 Business Strategy
Leaving the business you’ve built can be difficult. Whether your focus is on your legacy or liquidity, you need to be realistic about what an e…
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