Walking Away From A Business: Can We Still Be Friends?

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From Forbes.com:

Walking Away From A Business: Can We Still Be Friends?

By Kevin Meehan

For entrepreneurs, walking away after selling a business can be a lot like going through a breakup: some move on to the next stage in their lives quickly, while others struggle to find a new role. The situation becomes more complicated when a sale transaction includes a sort of post-relationship “friend zone” – a transitional period during which the founder gradually reduces his or her role while the new management team gets up to speed.

Unlike a breakup situation, though, most business owners don’t have the option of changing their post-separation relationship with the company on the fly after a sale. If a transitional period is necessary, it will be spelled out as part of a binding agreement – which means that sellers need to think about the terms of their continued involvement well in advance.

In my decades of experience working with business owners, I always advise potential sellers to take an honest look at themselves and their emotional needs – not just their financial ones – before beginning the separation process from their business in order to avoid a period of prolonged heartache.

As with any separation, transitioning away from a business can be a delicate and sometimes frustrating process. The following steps can make sellers’ lives considerably easier:
  1. Talk it out. Sellers should give themselves enough time to conduct detailed conversations with people they know and trust about their emotional and financial needs and goals before they begin negotiating anything binding. They may want to talk to their family members, obviously, but also consult others who know them well and have their best interests in mind: accountants, lawyers, financial advisors – even their priests, rabbis or other religious leaders!
 The point is for potential sellers to determine their goals and financial and emotional risk tolerance during a potential transition process as soon as they start to feel it may be time to walk away, rather than trying to solve these questions on the fly once they (or their other stakeholders) receive an offer.
  1. Set clear boundaries. Once sellers have a solid sense of their needs and goals, they should work to ensure that the transition agreement includes terms and timetables that reflect the level of insight they’ve developed in point 1, and which clearly align with the relationship they want to maintain with the company during the transition.

These expectations should be clear on both sides from the outset. In one unfortunate example of how a transition can go sideways when this is not the case, a client of mine stayed on to operate the company he built after selling control to a larger firm. Although he believed the transitional agreement gave him considerable autonomy to continue to make decisions for the company, the new owners did not, and he was eventually let go when the two sides could no longer see eye-to-eye.

  1. Keep moving forward. Transitional periods are not always easy for company founders. It can be wrenching to see their importance gradually diminish within their own businesses, even when they know it’s time to move on.
 When a friend goes through a breakup, the best advice you can give them sometimes is to keep putting one foot in front of the other. Forward momentum is just as important in the context of walking away from a business. Establishing clear, achievable milestones and goals for the new management team will not only help them reach a point of self-sufficiency faster and put the business in position to thrive once the founder moves on, it will help the seller gauge his or her own progress toward beginning the next stage in life.
  1. Give yourself options – including an early exit, if necessary. There are plenty of fish in the sea, as the saying goes. For entrepreneurs who are struggling to step away, getting involved with a charity, a post-career “encore” business, or any number of other endeavors may help ease the urge to re-engage in the day-to-day operations of their former business or expand their role beyond the boundaries of the transition agreement.
 For some entrepreneurs, however, the pull of their old role will always be irresistible. Returning to the example above, a well-structured “escape hatch” negotiated as part of the transition agreement – for instance, a lump sum buyout equal to a reduced percentage of future earnout payments or a purely advisory board position – might have enabled the company founder to exit the business on his own terms once friction started to build with the new ownership.

In this case, though, everything worked out in the end, as my client was able to repurchase the business and sell it under much more favorable terms a few years later!

For entrepreneurs, stepping away from a business is as much an emotional process as a financial or business decision, especially when there is a transitional period involved as part of the transaction. That said, each of us deals differently with separation and change, and it can be difficult to structure a transition that will meet the needs of the former owner at the same time that it positions the business for continued success. By following the steps above, business sellers can position themselves for a productive and fulfilling transitional process that helps them commence the next stage of their lives with confidence and a clear head.


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