Step One – Fire Yourself!

by Burr & Forman
Contact

Most often the seller of a privately held company is the same person who was the founder and who runs, owns, and brings vast personal knowledge and charisma to the business. That’s YOU.   There is a good chance that YOU are the key reason why your company is great, valuable and profitable. But that also means without YOU, the company may be a high risk proposition to a buyer.

If you ever want to sell your company or bring in an investor, you’ve got to focus on these two words: Transferable Value.

Transferable Value is what a buyer owns after the transaction closes. From your point of view, the buyer is going to own a wonderful and very profitable business. From their point of view (which is the only one that counts) they are going to own a business that may be losing a critical asset –YOU. Therefore, painful as it may be, you’ve got to FIRE YOURSELF.

In short, smart Buyers don’t buy YOU companies because the key asset is in fact the current owners and they are not transferable. So, if you are critical to your company’s success, your business may lack transferable value because its value is limited to the resale value of the hard assets, which is oftentimes very little.

There are three fixes for this dilemma:

  1. FIRE YOURSELF and hire a replacement professional manager who has no family ties;
  2. Become an IP (intellectual property) based company which is valuable for strong transferable assets in the form of patents, trademarks, copyrights and trade secrets; or
  3. Do both of the above.

In this post, I will focus on Option 1 – FIRE YOURSELF.

As mentioned above, if you are the soul of the company, the repository of its knowledge, or even just a charismatic leader, buyers will fear that as you go, so goes the business.   The buyer can prevent you from competing with it by contract, but the buyer needs to know if the business can truly excel in the buyer’s hands.  That requires FIRING YOURSELF and having 2-3 years of non-family management to prove that it works.

So, in essence, you are intentionally replacing the best person for the job (YOU) with someone who has much less knowledge of the field, much less experience in running your company, and who does not have his/her heart, soul and life’s commitment in the company as you do.  You are proving that your leaving allows the company to stay strong and profitable.

Your first reaction to this might be:  “Are you kidding?”

Your second reaction should be:  “I get it.  The buyer needs to know if it can run the business without me in order for the buyer to be willing to pay top dollar.”

FIRE YOURSELF is tough.  You have to think like a buyer and park your ego.  Then you have to pay someone to do your job while you sit on the sidelines.  Finally, you have to risk the success of the business on someone who isn’t you.

If you are able to FIRE YOURSELF, you have proven that your business has that magic transferable value.

Your reward: you get your life’s investment out of the business.  That should make it worth it.
Are you up to the challenge?

Stop back and read my upcoming post on option 2 above: The alternative to FIRING YOURSELF.

If you would like more information on business succession planning or would like to discuss any of these issues with Burr & Forman’s Business Planning and Succession team members, feel free to give us a call.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Burr & Forman | Attorney Advertising

Written by:

Burr & Forman
Contact
more
less

Burr & Forman on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.