One of the advantages of having other owners in your business is that they can be your means to retirement.  A common retirement planning technique is to take on a younger minority partner while you are still active. Upon your retirement, the younger owner will purchase your remaining stock.

This can be advantageous because the younger partner learns the business under your direction. Equally important for you, the younger person’s strengths and weaknesses are known to you, so you have a pretty good idea of how the business will be run after you leave. Most important, the business can be sold into a market you control. 

Take the case of Fred; Fred started his manufacturing business in the Silicon Valley in mid-eighties and took on Gary as a ten percent partner ten years later, forming FGM Manufacturing Company. At age 61, Fred wants to retire and maintain his current lifestyle. He would like to sell his share of the business to Gary - if he can be guaranteed a good retirement income. Gary who is 40, doesn’t have the cash needed to acquire Fred’s shares. Consequently, Fred is left to contemplate the advantages and disadvantages of a sale to his co-owner.  

Advantages

• Owner can structure the deal ahead of time to suit his needs and objectives.
• Establish an internal fund for the eventual purchase of owner’s interest.
• Maintain control during the buyout.
• Pre-qualify buyer(s) on the job.
• Continuity of business mission and culture.
• Employees who helped build the business retain their jobs and future with company.

Disadvantages

• Limited cash up front, unless pre-funded (usually with owners money anyway).
• Increased risk exists because buyout must be funded with future earnings after owner leaves.
• Difficult for employees or co-owners to afford payments in businesses worth over $2 million.
• Employees often don’t have the entrepreneurial mind set needed to meet the challenges of ownership.

Tags: business successor, exit your business, financial security, leaving your business, retirement, sale of your business, transfer of business ownership, transfer your business