Heidi Bolger
Heidi Bolger

Transitioning Ownership of Your Client's Business

Four possibilities divulged.

April 18, 2011
by Heidi Bolger, CPA, ABV

Unless your clients are serial entrepreneurs who create and sell businesses, the process of "giving up" ownership of their business will be an event of a lifetime.

When you consider the outcomes of this momentous decision, it's clear that all options should be explored. Will your client's transition plans:

  • Ensure that they have plenty of money to support an extremely comfortable lifestyle?
  • Provide a process for choosing a successor that will protect and build good relationships among their management team?
  • Allow them to create a transition "story" they will be proud to share with their cronies at the local coffee house; the tale of how they did it all their way and with tremendous success?

Preparing Your Client for the Adventure of a Lifetime

No doubt they've had some great business experience in developing the right strategies and making good financial decisions for their business. But unless one of those strategies has been to grow their operation through mergers and acquisitions (M&A), they may only have wondered what an M&A guru really does. To the extent that they have been consumed by operating a successful business, they probably have not been rubbing elbows with professional M&A advisors regularly. These are the people who will become their new best friends if they decide to sell their business to someone outside their company. And if an outside sale is not in the cards, have they identified some potential buyers inside their company who are ready to lead their business into the future?

And what about your client's well-being? Transitioning "their" business will change their life in ways that most of us can only imagine. I've seen situations in which the two-year to three-year time frame established to exit the business turns into six months or less when owners become anxious to get on with their new lives. Unfortunately, I have also witnessed situations in which the idea of not being engaged with the business fully has created serious health issues for owners. It can be like an artist creating a rare masterpiece — the prospect of having someone else enjoy and control it can be more than the artist can endure.

On the practical side, the key to a successful exit for many business owners is financial, i.e., being able to buy low and sell high, while fully realizing the value of all the sweat and tears they've invested. This aspect can be managed to some degree through careful planning, as long as those darn economics swings stay out of the way!

What's Really Possible?

  • Hiring third-party packagers. I recall clients sharing with me that they attended an amazing seminar on how to sell their business and make zillions of dollars if they only wrote a large check to those presenting the seminar. This would enable them to get the business packaged just right and presented to the right buyers. In reality, the most important factor in a successful sale is that their business is actually valuable enough to attract a buyer. In other words, it does more than provide employment for the family and is worth more alive than dead (vs. just a bundle of assets earning below industry rates of return).
  • Funding buyers. A critical decision every seller makes is whether the buyer(s) of their business will come from inside or outside the business. As a general rule, selling to outsiders will maximize their selling price and get sales proceeds (also known as cash) in their hands the quickest. This type of transaction also means they need an investment banker or business broker on their team to find the right "buyer match." Some family-owned businesses opt to combine an "external" and internal sale by having key employees buy part of the business, while the other part stays with the family or even becomes owned partially by an employee stock ownership plan ESOP).
  • Transition options. Another key decision every owner contemplates is whether they prefer to stay on or leave after the sale is negotiated. Some buyers insist on a transition period, while others want to replace the owners and leadership team with their own team right away. Many things, including the culture, are sure to change and their masterpiece will never look or feel the same. It can be heartbreaking for the artist/entrepreneur to experience this after a lifetime of good creative work.
  • Speed of relinquishing ownership. Some owners prefer to dole the equity out piece by piece to children or other buyers, while others prefer to send the whole elephant out the door at once. Installment sales or gifts can make the piece-meal approach work. Multiple business locations, distinct lines of business or commercial real estate also present opportunities to sell or gift pieces of the enterprise over time, if due care is given to the tax outcomes.


When it comes to getting paid for their business, conventional wisdom is to "get the cash, get the cash, get the cash." This seems to be particularly sage advice if their buyer is outside the business. In many transactions, an "earn-out" that provides your client with the opportunity to share in the future upside of sales or profit is a good option. This can be a way to channel more dollars to the seller if the business continues to do well. With an inside sale, the seller typically has more access to information on how the business is performing post sale (especially if all the money isn't paid up front). Your client may even continue to serve in a board position or other role that allows them to place limits on the power of new owners until the purchase price has been paid out.

In an upcoming issue, I'll reveal how transitioning ownership of your client's business can become a team sport. In the meantime, rest assured that if your client has a fruitful enterprise, their ownership transition options will be many.

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Heidi Bolger, CPA, ABV, CFFA, CMAP, is a founding Principal of Rehmann Consulting and advises clients in the areas of succession planning and business sales.