Many people assume that when the subject of “exit” comes up with a business owner, we are discussing the owner’s retirement. This is not always true, and assuming it is true creates problems for owners, their companies, and their families.
Exit does not have to mean retirement. Separating exit and retirement (and approaching them differently) makes for better exit planning, a smoother transition for the company, and a happier life for the owner and his or her family. Here’s why.
Business owners typically interact with their companies in three ways:
- Ownership – you own some or all of your company
- Involvement – you are engaged in your company’s activities, usually on a day-to-day basis
- Leadership – you are a leader within your company, typically the chief executive or similar level
Put these three letters together and you get the word OIL. It’s helpful to remember this acronym, because it can help owners better understand their personal exit goals and build flexibility into the exit planning process.
The OIL Doesn’t Need to Flow Together
In most situations, business owners think about and act as though their ownership of the company, their involvement within the company, and their leadership over the company are completely intertwined and inseparable. In other words, the OIL must always flow together.
Owners often think this way because that’s how it’s been during their career. Business ownership dominates their financial reality, they are fully involved in the company from a time and emotional standpoint, and they are clearly a leader over the company.
However, the OIL does not need to flow together. You could sell some or all of your ownership of your company but remain fully Involved in the company and continue as the key leader. Or, you could keep your ownership of your company but hire a new CEO (or equivalent) to replace you as the company’s leader.
Both examples demonstrate that you can pursue and implement different timelines for reducing or ending your ownership of the company, involvement in the company, and leadership over the company. Sure, sometimes at exit all three things end at once, but it does not have to be that way. You absolutely can “exit” your company but not retire.
Overcome 3 Common Exit Planning Challenges
All of this is significant because sometimes business owners get stuck in their “exit planning” if they think and act as though the OIL must always flow together. Here are three common exit planning challenges, and how thinking about OIL differently can lead to exit success:
- You want to sell some or all of your business to “take some chips off the table,” but you are worried about not knowing what you would do with yourself because you don’t want to retire. Well, we now know that you don’t have to retire. Consider targeting buyers who will acquire some or all of your company but want to keep you around and can offer exciting opportunities in the new organization.
- You want to sell your company to one or more employees, but you are worried about control — you must make sure the company performs well while buying you out. Well, we now know that you can continue to be involved in the company and remain the leader over the company while selling your ownership of the company. It’s possible for your ownership to decrease to nothing while you remain the chief leader of the company! (Ask us how to do this.)
- You want to pass your business down to one or more family members, but you don’t want to retire for now (and maybe never), nor do you want to give up control just yet (and maybe never). It’s possible to transfer some to all of your ownership to those family members without ever retiring (meaning without ending your involvement) and without giving up leadership unless and until you are ready. (Ask us how to do this.)
Assuming that exit equals retirement creates roadblocks to exit success for the owner, his or her family, and his or her company. A better approach is to think about O, I, and L separately, and examine how unbundling these issues can create a better exit plan.