When a successful business owner is faced with an offer to sell equity internally we often hear:
- “Why would I sell now?”;
- “The business has just started taking off”; or
- “I will think about it after another year of profit”.
This attitude, however understandable, can be shortsighted.
Is there anything better than everyone in the office incentivised to grow your business?
It has stuck with me, courtesy of Tim Lane and his famous repetitive lines, that ‘it’s better to own a smaller slice of a bigger pie’. With more people owning a portion of the pie you diversify your business risk, and whilst the pie is growing you receive the same level of profit distribution and capital value. This is the best case scenario. Business impacts like the retirement of an owner, or loss of a key employee, reduces the immediate and personal impact when spread across more people. Your retirement becomes easier. Your ability to take a holiday returns. Your family’s ability to move on if something happens to you stops being a concern.
Now, we are not saying to sell your entire shareholding now. Maybe the business is just taking off. But, you need to be aware that waiting can destroy future plans as it can lead to:
- Employees believing you are not interested in selling them equity;
- Team members taking other opportunities – be it a job that promises equity, or their own business;
- Major, life altering, events – an illness or a change in family structure that makes them unwilling to buy in;
- Belief that the increased value is now ‘unaffordable’; or
- People becoming disenfranchised with the business and no longer giving their all.
By selling some of your equity to internal successors they become motivated to grow the business, encouraged to stay in the business, and contribute to the development of the business. Combining this with KPIs and detailed timing mechanisms means you do not have to miss out on the reward for your risks and hard work. Talk to us at Accru Hobart on how to make the most of your succession.
