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The Business Owner Exit–Succession Process

By Frank Legan and Michael DeJohn

When you first get that spark of an idea to start a business or create a service or product, you were probably caught up in the passion and excitement of it. In those early days, it’s not likely you spent much time thinking about how and when you’d transition out of the ownership role. But after the years of the blood, sweat, and tears that go into building a sustainable business, all business owners have at some point considered the final transition of their business. 

But just thinking about it doesn’t cut it. Since every single business owner will one day transition their business at some point, advanced planning is critical to achieve their aspirations—both for their company and family. Unfortunately, less than 25% of business owners have established a formal written business succession plan. (1)

This failure to plan is often due to two reasons. First, business owners are much better working in their business than on their business—as they should be. Second, the process of creating a proper succession plan can be difficult and overwhelming. This is where professionals can greatly assist owners by illustrating and implementing a clear and concise process from beginning to end. 

Here’s a glance at what our team will cover in our stage-by-stage process. 

Stage One: Initial Learning Meeting

Defining exit objectives and goals:

  • Desired departure date?
  • Income/financial security requirements?
  • What exit route can I take?

Stage Two: Gathering of Financial & Non-Financial Information

Personal financial analysis: 

  • Review existing financial, estate, and business plans.
  • Determine gaps in each of these plans, if any.
  • Discuss wants and needs. 

Stage Three: Determination of Business Value

Current valuation and the development of value drivers:

  • Analyze each exit route to determine how to protect and increase business value and understand the tax implications of ownership transfer through sale, gift, and estate. 
  • Obtain a formal valuation performed by an independent third party to set a fair price for company stock based on a consistent methodology for valuing the stock in the future. Include a reasonable discount for lack of marketability and minority interest, if applicable. This provides a benchmark for buy-sell agreements, executive compensation equity-based plans, etc.

Stage Four: Choosing an Exit/Transition Route

  • Sell to an outside third party (financial or strategic buyer).
  • Sell to employees using an Employee Stock Ownership Plan (ESOP)*.
  • Sell the business to one or more key employees (management buyout).
  • Sell to remaining shareholders.
  • Transfer the company to family member(s).
  • Retain ownership but become a passive owner.

Stage Five: Implementation of Chosen Business Exit Route and Post-Transaction Servicing

  • Engage shareholders and the company to execute the chosen business exit route (external or internal sale or transfer).
  • Develop a contingency plan for the business (define key succession management, and be able to answer who will run the business in the event of a death or disability of current operational shareholders).
  • Develop a contingency plan for the owner’s family (financial, estate, and charitable planning).
  • Develop an ongoing servicing plan for the business and family (ongoing review to ensure that planning is being followed and to advise in the event of life changes within the family or succession management).

We’re Here to Help

Transitioning your business and relinquishing the reins will likely involve a mixture of emotions. As with any important business decision (and especially when it’s emotional), it’s wise to partner with a financial professional who can serve as an objective and knowledgeable third party. We at Cedar Brook Group would be honored to help guide you through these decisions, the transition, and whatever comes next. To set up an introductory meeting, reach out to us at 440-683-9213 or flegan@cedarbrookfinancial.com

*Whether ownership has elected to implement an ESOP, sell fully to a strategic/financial buyer, or raise capital for growth of the business in advance of a broader sale, the following business enterprise value and characteristics are a good rule of thumb. We can and have implemented each of the exit options listed above within our team and in collaboration with existing business and family professionals.

  • Sale of business to an outside third party (Enterprise Value range: $500,000 to $100,000,000+)
  • Sale to employees through an ESOP (Enterprise Value range: $3,000,000 to $100,000,000+, 20+ employees)
  • Capital raise for growth or shareholder liquidity (Placement amount: $1,000,000 to $50,000,000+)

About Frank

Frank Legan is Partner, Financial Advisor, and member of the Investment Committee at Cedar Brook Group, one of the largest independent wealth management firms in Northeast Ohio. Frank spends his days designing and implementing personalized financial planning strategies for corporate executives, closely held business owners, artists, families, and retirees. He specializes in lifetime income strategies, investment advice, and estate planning services. He also works with businesses to develop strategic and succession planning strategies. Frank has a Bachelor of Arts degree in Political Science from the University of Dayton, as well as a Master of Public Administration degree focused on municipal management from Cleveland State University. Prior to joining Cedar Brook Group, Frank was a financial advisor in the private client group at Merrill Lynch and with NatCity/PNC Investments. Frank is active in his community, serving on various councils, boards, and committees. When he’s not working, you can find Frank spending time with his wife, Laura, their daughter, Reese, and their beloved collie, Charlie. Frank and his family are volunteers at St. Francis of Assisi church in Gates Mills. Frank serves as Chairman of the Board of Directors for Catholic Charities Diocese of Cleveland. To learn more about Frank, connect with him on LinkedIn.

About Michael

Michael DeJohn is partner and financial advisor at Cedar Brook Group, one of the largest independent wealth management firms in Northeast Ohio. With over 8 years of experience in the financial industry and more than 30 years of experience managing business for Fortune 500 and small cap companies, Michael serves corporate executives, professionals, business owners, and other high-net-worth individuals and families, helping them design comprehensive, personalized financial planning strategies. He specializes in small business mergers, acquisitions, and succession planning and is well known for his ability to help in the sale of small businesses using private equity. Michael is also a licensed funeral director, which puts him in a unique position to help his clients with end-of-life planning. Michael is passionate about putting his clients first, helping them build, preserve, and transfer wealth so they can live the life they dream about.

Michael holds a bachelor’s degree in accounting and finance from Bowling Green State University, graduated from the Harvard Business School program on negotiations, and completed the planning and general management program at Case Western Reserve University’s Weatherhead School of Business. He is a United States Army veteran, having spent 14 years serving as captain, aviator, and military intelligence officer. Michael sits on the board of many local organizations and has been actively involved in local high school and college football officiating for 47 years. He’s even a member of the Cleveland Football Officials Hall of Fame! When he’s not working or officiating, you can find Michael spending time with his three sons and multiple grandchildren, enjoying the outdoors by hiking, fishing, cycling, and gardening, and volunteering with his local parish to minister to those who are sick in the hospital. To learn more about Michael, connect with him on LinkedIn.

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(1) https://www2.deloitte.com/content/dam/Deloitte/us/Documents/deloitte-private/us-dges-business-succession-planning-collection.pdf

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About Frank Legan

Frank Legan is Partner, Financial Advisor, and member of the Investment Committee at Cedar Brook, one of the largest independent wealth management firms in Northeast Ohio.

Frank spends his days designing and implementing personalized financial planning strategies for corporate executives, closely held business owners, artists, families, and retirees. He specializes in lifetime income strategies, investment advice, and estate planning services. He also works with businesses to develop strategic and succession planning strategies. Frank has a Bachelor of Arts degree in political science from the University of Dayton, as well as a Master of Public Administration degree focused on municipal management from Cleveland State University.

Prior to joining Cedar Brook Financial Partners, LLC, Frank was a financial advisor in the private client group at Merrill Lynch and with NatCity/PNC Investments. Frank is active in his community, serving on various councils, boards, and committees. When he’s not working, you can find Frank spending time with his wife, Laura, their daughter, Reese, and their beloved collie, Charlie. Frank and his family are volunteers at St. Francis of Assisi church in Gates Mills.

Frank also serves as Vice Chair of the Board of Directors for Catholic Charities Diocese of Cleveland. To learn more about Frank, connect with him on LinkedIn.

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