Of the nearly 7 million private and public companies in the United States, fewer than 10 percent report thinking about developing a succession plan. 3i Law lawyer Chuong M. Le says many pro AV business owners mirror that statistic — much to their own detriment.
You don’t always have a child to pass the AV business baton to. And, more often than not, business owners have to pull out all the stops in order to be acquired. So if your aim is to get out of the business any time soon, you need to have a proper plan in place.
Begin by weighing your options. Here are some different ways to run a company through a business ownership transition.
Different Succession Plan Frameworks
“Lifestyle Company” Transition
AV business owners running a “lifestyle” company take out big chunks of profit regardless of the company’s performance. They live off the income, and the founder is the key beneficiary.
Benefits
- your own personal money tree
- one less thing to worry about the future
- complete flexibility
Drawbacks
- negative tax implications
- investors won’t like this
- not enough funds for future
- no long term succession plan for key employees
Internal/Legacy Sale
Le, whose firm has closed many of these types of business sales, says more and more companies go this route. The founder has a vision, passes it to someone who also believes in the business. That could be a child, a close friend, a like-minded entrepreneur or a star employee.
Benefits
- flexible tax and financial planning strategies, since it’s on a friendly basis
- continued legacy of the business
- less due diligence involved
- familiarity between parties
Drawbacks
- takes longer to get paid
- business issues outweigh friendship in some cases
- family issues can become a snafu
- too much emotional involvement
Liquidation
Less common for pro AV business owners, this form of business succession is more commonly associated with retail stores.
Benefits
- natural; everything comes to an end
- no negotiations involved
- no transfer of control issues
Drawbacks
- legacy and goodwill are lost forever
- employees may not be ready to quit
- under-valuation of assets
Acquisition
The pro AV industry has seen many of these in recent times. As glamorous as this option sounds, some AV firms just aren’t ripe for the picking, so to speak.
Benefits
- strategic/intrinsic worth to the acquirer
- possibility to expand legacy of the business
- optimal value for company
Drawbacks
- time consuming and complicated
- may hinder ability for founder’s movement into other ventures
- may destroy legacy and years of work if the new direction goes awry
Initial Public Offering (IPO)
Get it through your head now: this probably won’t happen for you. Going public is an inherently-attractive idea (after all, you could end up famous). But for most, that doesn’t happen. Regardless, here’s the deal:
Benefits
- ability to raise the greatest capital
- rapid growth and expansion
- exposure and prestige
- lower cost of capital
Drawbacks
- large fees and expenses
- quickly giving up part of your company
- reorganization of company
- restrictions and conditions
How AV Business Owners Should Make Tough Succession Planning Decisions
Before considering any one of these frameworks, the most important first step is determining the AV business’s worth. From there, you can worry about more egotistical decisions, such as how important your company’s legacy is to you, and how much of that you are willing to risk or ignore in the process of passing the torch.
AV business owners should use a clear intention and personal preparation to make sure they’re as comfortable as possible when selling their companies.
They should go through a business assessment, during which they carefully consider the risks the company carries.Your ability to see risk is better with other businesses than with your own.
