How to Leave a Legacy

The sale or transition of a business is a messy, complex, and time consuming process. If you want to make sure it’s a success and doesn’t tear your family apart, you have to make sure it’s done right. Randy Long reveals the biggest misconceptions around selling a business and how to make sure your children still want to eat Thanksgiving dinner together afterward.

• Randy is a lawyer by trade with a background in finance, having practiced for the past 25 years. Around half way into his career in law, Randy started working with the father of exit planning, John Brown.
• Around 9 years ago, Randy and his daughter started a separate consulting firm focused on helping multi-family, multi-owner businesses get prepared to sell.
• Many business owners have no idea what it takes to prepare a business to be sold. Working in the business and getting the day-to-day tasks done can make it hard to step out of that role and plan for the future. That’s typically where Randy comes in.
• Transition periods can be quite long, with most businesses working with Randy for more than a year. Some families contract with him for multiple years when the situation involves transitioning between generations.
• One of the biggest misconceptions is business owners don't understand that buyers are going to look at their business differently than they do. They don't look at it with the same set of eyes.
• The business owner has to be able to put on the glasses of a buyer to look fresh at their company, which can be a major challenge. Many business owners struggle with transitioning their business to their kids without causing a lot of conflict and strife among the other family members.
• Randy uses the Thanksgiving Test to judge the success of a business transition to the next generation. The first year after the parents are gone, will the kids still have Thanksgiving dinner together and be happy to be there?
• Not communicating with the family can be devastating after a parent’s death.
• Another major misconception is the belief that a person’s business will sell for a hypothetical average multiple, but the truth is each business is unique and sold on their pros and cons.
• Many business owners also find themselves in trouble after selling their business where they no longer have the income, benefits, and insurance they used to be able to deduct.
• There are a lot of variables when it comes to selling a business and no two sales are going to be quite the same.
• The business and merger and acquisition cycles also have an impact on the sale of a business. Ideally, business owners time the sale to maximize the value. Don’t wait until you absolutely want to get out of your business, plan around the business cycles instead.
• Service-based businesses can be sold too, they just need to be structured in a way that the business owner isn’t physically necessary to get the work done. Those types of business owners need to shift their thinking from the down to earth job of getting things done to higher level strategies like joint ventures.
• Randy usually starts working with those business owners by eliminating their tasks and slowly delegating them out to employees, which frees up the owner to do what they are good at: finding new business and inspiring employees.
• You’ve got to get away from the day-to-day grind to give yourself time to think and get your head around the future.
• Business owners often desire control, which can prevent them from scaling past a certain point. The most successful multiply themselves and expect progress instead of perfection.
• The first step is finding the work the business owner hates doing. Once those tasks are identified, they become the job description of the next employee.
• Randy prefers to keep his consulting business small and work with around 15 clients at any given time.
• Most financial advisors are W2 employees, not business owners. Those employees can be integral to a business and are often targeted during a transition to encourage them to stay on.
• One of the keys to the sale is identifying key employees. Randy tries to put a package together for them to stay during the transition that’s beneficial to them and to the future owner.
• Buyers are always looking to eliminate risk, and locking in key employees is one of the most important ways to mitigate risks of the purchase.
• Randy usually takes businesses through a sale over 6 to 12 months and works with companies earning anywhere from $2 million to $100 million annually.
• You have to reinvent the company as you move forward. You’re not going to run the company that your father ran because the world has changed.
• Just like how there is more to retirement than a 401k, there is more than just the dollars and cents in the sale of a business.
• The secrecy of money is an obstacle that many families face when trying to leave a legacy. Open lines of communication are crucial to the success of a generational business transition.
• One of the big benefits of working with Randy is his company brings a lot of things to light that might have previously been completely unknown.
• Randy works with business owners to figure out all aspects of their financial life prior to the sale of the business, and that can include closing the gap on what the business needs to sell for in order to fulfill the client’s needs.
• There are ways to limit tax exposure, especially capital gains taxes, but it requires extensive planning and time prior to the sale.
• The problem is business owners typically aren’t qualified to decide what they really need in this arena, but some professionals take the easy way and just do whatever the owner wants. This can lead to silo-style planning that causes more problems than it resolves.

Mentioned in this episode:

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