After years of building your business, often from scratch, you’ve reached a point of satisfaction with the lifestyle the business is providing. BUT. For any business, growth is an imperative. If you ever hope to transfer the wealth of your business onto your personal account of net worth, you may well have some serious business to attend to and you can benefit from bringing others onto the team.
One of the important questions a buyer will pursue is an understanding of how easy the company will be to run after they buy it and you leave. Too often the value of the business is decreased when the business needs you to keep it running. Further, the more the business depends on the owner, the longer the payout of money and the longer you will still need to be running the business.
A good solution is to hire a President or Chief Operating Officer and give yourself a promotion to Chief Executive Officer. That way you can focus on the growth of the company and its strategic plan, while leaving daily operations to others. Another solution is to move to having a functioning board of directors rather than close friends and associates.
Figure 1. Range of Advisor Options
Figure 2 shows the typical trajectory of a board for a business. When starting the company some close knit family members or partners start by divvying up the equity and shaking hands. Too often they don’t formalize the relationship in writing or do it poorly. A family dominated board can be a challenging situation when family members working in the business and those outside the business get involved. The sudden death or illness of a leading family member can stress the whole thing.
Figure 2. Board Development Over Time
If you don’t want to give up equity or voting rights, you can hire people to be advisors to the board, bringing in critical skills and experiences needed to grow the company. As a company gets larger, they will often move to having a majority of the family and close associates on the board with majority voting rights and bring in a couple or few truly independent board members with a fiduciary responsibility to the shareholders. A much bigger organization may take the leap to have an independent board with full voting and fiduciary responsibility to the organization.
The choice is yours. Studies have shown that there is better performance and growth in companies that make the owner/CEO accountable through a well-functioning board of directors.
