By: Patrick Ungashick
About 70% of the six million privately held businesses in the United States have more than one owner, and the average number of owners per business is nearly three. Practically all of them want to successfully exit from their businesses one day, and most of them will find that their path to exiting successfully requires aligning their exit plans with those of their co-owners. This is where the challenge begins.
The connection between being a business co-owner and the need for co-owners to create alignment at exit can be understood by imagining a chain with three links upon which a sentence is printed. This conceptual tool that is created for NAVIX Consultants from working with hundreds of business owners, is called the Three-Link Chain.
The first link says:
Business owners cannot achieve their major goals without a successful exit.
Business owners usually share a similar set of desired outcomes for their exit. These most commonly include reaching financial security, having the freedom to do what you want to do, and creating a sustainable business legacy. For most owners, all of these desired outcomes are only realized with a successful business exit. To reach financial freedom, most owners need to unlock the majority of their wealth which is tied up in their business and its supporting assets. To have the freedom to do what you want to do, most owners need to turn the business over to new ownership and leadership. To create a sustainable business legacy, most owners need to successfully exit and demonstrate that the business cannot only survive without them, but actually thrive.
The second link in the chain says:
Business co-owners cannot successfully exit if their goals are incompatible with one another.
When a business has two or more co-owners, some or all of the co-owners cannot successfully exit if their individual goals are incompatible with one another. It is common that one owner’s goals will hinder, disrupt, or outright block one or more of the other owners’ goals. There are many ways this can occur. For example, one co-owner may want to sell the business to an outside buyer, whereas another co-owner wants to pass the business down to family. In other examples, the co-owners could have different exit time frames, or vastly different dollar amounts they want at exit, or conflicting beliefs on who should lead the business going forward. Sometimes the co-owners have goals which are only mildly conflicting. Sometimes the co-owners’ goals appear to be completely irreconcilable.
The third link in the chain says:
Goal compatibility can only be achieved with a conscious and ongoing effort to create co-owner alignment.
Goal incompatibility rarely goes away on its own. If anything, waiting makes matters worse because with less time, co-owners will have fewer solutions. Therefore, co-owners must proactively work to create and maintain an aligned approach to exit planning, working together collaboratively to implement strategies and tactics that enable every involved owner to successfully exit.
The Three-Link Chain illustrates the connection between business owners needing to successfully exit one day, and business co-owners needing to work together to make this happen.
Finding co-owner alignment is one part of the exit planning process. Planning for and achieving a successful exit involves a range of financial, tax, legal, and business challenges. Also, most business owners will exit only once and consequently lack experience planning for exit. Therefore, owners and co-owners stand to greatly benefit from engaging a team of advisors knowledgeable and accomplished in this field. The essential advisors are an exit planner, accountant, and attorney. Depending on the co-owners’ exit strategy and time horizon, additional advisors may include a mergers and acquisitions (M&A) professional, commercial banker, financial planner, and business appraiser.