Three Scenarios for An Owner’s Exit

Gary Silverman, CFP®

Last week we learned that I am retiring—in a couple years. I talked about how small businesses will transition (or fold) when the founder or current owner retires and what might affect the owner’s decision to keep the business going or let it die. Today, I’ll share the three basic owner scenarios as I see them. 

First, the owner may be operating as a generic businessperson. The skill sets they are using are those that many other people have. Their replacement can step in and learn the business without needing to be an expert in the particular business. As the new owner/manager, they must be experts in running a business. 

For example, to run an airline you don’t have to be an ex-pilot or ex-mechanic. You do have to know about shareholder relations, corporate finance, staffing, etc. Because of this, business owners that have been in similar positions elsewhere will have an easier time transitioning even if into a different industry. 

In this case, customers have loyalty to a price, a product, or the company. They have no loyalty to (and possibly no knowledge of) the owner/manager. When the boss changes, most customers don’t care or notice.

Next are the artists--those one-of-a-kind owners that customers think are unique and irreplaceable. Whether or not they are doesn’t matter. What matters is what the customer believes. In this case, it is difficult, if not impossible, to transition clients to a new owner/artist. 

Fortunately, in many (actually most) cases, others could do the job equally well, if not better. If one can be trained at the feet of the master to become their equal, then a transition is possible within the firm. The problem is many of the artists want to think they have a gift that can’t be replicated. Even if this isn’t the case, that notion keeps them in business.

The last category is the “professional.” This might be the attorney, CPA, physician, or, like me, the financial advisor. We not only own or manage our business; we are the ones providing all or a critical subset of services directly to the client. In these cases, the client is more the professional’s client than the firm’s. For instance, my physician is at Stratos. And while I have no complaints about the care I’ve received there, I am staying because of Dr. Swanson, not because of Stratos. If he moves, I move. If he stays, I stay.

For both of our sakes I hope he retires before I die. If so, I’ll need a new person to watch over my health one day. While my doc is great, I do not think he is the only one who can provide this service to me. Choosing a doctor at the same practice would be convenient, and certainly considered, but my ties are with the caregiver, not the firm.

Here the loyalty is to the owner/practitioner, but the client knows that acceptable alternatives are available.

Next week, we’ll discuss how an owner/practitioner like me might go about helping their company survive once they leave.

Gary Silverman, CFP® is the founder of Personal Money Planning, a retirement planning and investment management firm located in Wichita Falls. You may contact him at www.PersonalMoneyPlanning.com