Understanding Your Roles as a Business Owner and Navigating the Exit Process
As a business owner, you wear many hats and juggle various responsibilities within your company. From being the chief cook to the bottle washer, you understand that the buck stops with you. In this blog post, we will explore the different roles you play as a business owner and how understanding these roles can help you navigate the complex process of exiting your business. As a consultant specialized in helping business owners through the exit process, I aim to provide insights and guidance to ensure a successful transition.
Private versus Public Roles: In publicly-traded companies, the roles of managers, board members, and shareholders are typically separate. Shareholders own the business and elect a board of directors to oversee its operations. Managers report to the board and work in a fiduciary capacity to increase shareholder value. However, in privately-held businesses, the owner assumes all three roles. As the owner, board member, and manager, you have a unique set of responsibilities and decision-making authority.
The Importance of Role Differentiation in the Exit Process:
Understanding the distinctions between your roles as a manager, director, and owner is crucial when planning your exit. While the future owner of your business may want to maintain a professional working relationship with you as a key employee (e.g., CEO) during the transition, they also need to negotiate with you as a selling shareholder. This dual role can introduce complexities and potentially strain the relationship. Recognizing these roles and their impact on the exit process is essential for a smooth transition.
Receiving Your Exit Compensation:
When contemplating your exit, it's important to be aware that your exit proceeds can be received in different ways. While many owners expect to be paid for their stock ownership upon selling the business, there may be deferred and contingent payments involved. These payments are not received at the closing but at a later point in time. Additionally, exit proceeds can be received as "employee dollars," which may include continued compensation, pension income, perquisites, health benefits, bonuses, and profit-sharing. Understanding these options allows for greater flexibility and creativity in structuring your compensation. It's worth noting that "employee dollars" can often be more tax-efficient than "owner dollars."
Recognizing the multiple roles you play as a business owner and understanding how they impact the exit process is vital for a successful transition. By grasping the distinctions between your roles as a manager, director, and owner, you can navigate the complexities that arise during the exit process. Additionally, having a solid understanding of the various ways you can receive exit proceeds empowers you to structure your compensation creatively. With this knowledge and preparation, you increase the likelihood of achieving a successful exit transaction for both you and your business.
As a consultant specializing in helping business owners through the exit process, I am here to provide guidance and support. Together, we can navigate the intricacies of your exit journey and ensure a smooth transition to the next chapter of your life.
Are you ready?
Below is a link to a 10 minute, 20 question online assessment that can assist you in determining your financial and mental readiness for your exit. There is no fee to take the assessment and your answers are sent immediately to your e-mail and kept completely confidential. As a business owner who may be thinking through the eventual exit from their business, this complimentary online assessment may be the ideal starting point. And, after receiving your Business Exit Readiness Index™ Owner’s report, you may want to take a follow up meeting to discuss your answers to the questions to gain further clarity on how you may have a successful exit in the future.