Shooting Star
Shooting Star

So. You’ve spent 40 years creating, building and nurturing a successful business. And it’s been an incredible journey. But now, it’s time to rest on your laurels, kick back and enjoy what all that hard work has wrought – you know – quit working so darn hard.

But how? You can’t just lock the door and walk away. (Well, you could, but that would be crazy, right?) You’ve got a lot of your life and wealth wrapped up in that project – to say nothing of your employees and loyal customers. What you need is a succession plan, because nothing succeeds like a successful succession.

When it comes to handing over the reins, though, things can get complicated. Fortunately, Cadinha’s got some experience with this sort of thing and we’re here to help you not only get through it, but to come through the transition in a way that leaves you sitting on the beach without a care in the world. And with the peace of mind that comes with knowing that, even at the end, you did things right.

Generally, there are five ways to transition yourself out of your business while continuing to reap the rewards of your years of hard work.

  1. 1. Transition without an ownership change. Keep the business; hire an executive team to run it.
  2. 2. Transition ownership to someone from outside the firm.
  3. 3. Transition ownership to someone inside the firm.
  4. 4. Execute a merger.
  5. 5. Liquidate it.

Each of these transition plans has its upsides and downsides. And because the only thing certain is that the future is uncertain, it’s very important to do some self-analysis now and decide how you really want this transition to go.

Successful succession. Creating value from transition.

The most common view of transition is from the “I need to find somebody else to run this thing besides me. I’ve got a tee time,” perspective. But sometimes it’s about completely changing direction. Maybe it is time for new blood. New ideas. A transition can breathe new life and expansion into a business allowing you to receive your share of profits as the value of the business (and your share of it) skyrockets. It’s hard to let go of control, but the process could turn out better than you ever dreamed. Transition isn’t always about another person as much as another way.

Or maybe it is time to promote from within. Someone who is very familiar with both your business and its culture. If that’s the case, look at your entire team. The most obvious person at first may not be the best. This means you also need to look for this person’s replacement.

If you plan to transition from within:

  • Be proactive. Plan early.
  • Keep an open mind. Sometimes the obvious choice isn’t the best choice.
  • Make sure everyone in your firm knows the plan. Get them on board.
  • Train your successor.
  • Do a trial run, maybe by taking an extended vacation.
  • Be there to provide feedback throughout the process.
  • Use your succession plan to inform hiring in key roles.

Finally, don’t rule out liquifying the whole thing. Sentimentality aside, sometimes that’s the best way to go. And it’s the one option you can take that doesn’t leave you still working and still worrying about the future. Sell your business outright and invest the proceeds in a way that generates wealth for you and yours for generations.

Choose wisely.

Now, here are three things that are going to have an impact on how you choose to execute any of the five succession options above:

  1. 1. Taxes
  2. 2. Income
  3. 3. Liability

While liquidation will provide an instant influx of cash to you, it will also trigger an outflow of cash to our friends at the IRS. When you liquidate, you’re going to be hit with capital gains taxes, which could be substantial depending on your corporate structure.

Hiring an outside executive team to run things means that paying that team will be on the expense side of your balance sheet. You need to know how much this is going to cost. And you need to decide whether or not making that tee time is worth the hit to your cashflow.

And last, but certainly not least, you need to consider liability. No matter whether the company is being run by a new team or one promoted from within, as long as you maintain ownership, the liability buck is going to stop with you.

The bottom line here is that succession is a complicated beast. And you need to start planning well in advance of the day you intend to walk out the door for the last time. And make sure to ask for help along the way.

Let Cadinha help you succeed with a successful succession.

In a thriving business, transitions can be put on the back burner. And they can be emotional and complicated. In many cases, it’s a good idea to hire someone to help start the process, create your succession plan, and keep things on track. No matter what kind of transition is right for you, Cadinha & Company can help create and manage the efforts required for your business’ transition. Our philosophy of preserving the wealth that clients have built goes hand in hand with successful business transitions. As the overseer of your transition, we’ll lead you beyond it with that same philosophy.

We know it’s not easy to just hand off something you’ve spent a lifetime creating. But when the time comes, and it will, know that Cadinha will be with you to provide the expert knowledge and strategic planning to get it done right. And, when necessary, we’ll consult with other specialized professionals whose advice helps us achieve your goals. Though we’re known primarily as investment managers, when it comes to transition, our clients have counted on us to be their financial right hand for nearly half a century. Read more about how Cadinha & Company goes beyond investment management.

For our brochure on succession planning and other services where Cadinha goes beyond investment management, please fill out this form.