One of the unusual benefits of a Succession Plan is that it slows…..things…..down…., often a big advantage to both the founders (G1s) and the successors (G2s and G3s). If you want a fast exit, sell to a third party. If you want to retire on your own time table and at a more gradual pace, a succession plan offers some important and unique benefits.
The weight of buying equity after taxes, incrementally as it grows in value and becomes more expensive, using bank loans at then current interest rates to pay for the opportunity, is a bit like buying a house. Younger owners can get a lot more house, so to speak, with a twenty-year mortgage than a five-year mortgage; a Succession Plan similarly extends the amortization period using multiple tranches through multiple equity sales and purchases. This isn’t a detriment – it is a benefit!
Most G1 owners gravitate towards the idea of working less hard for a longer period while retaining equity that is appreciating in value (in most cases over time). G1s also want to see a return on their long-term investment–nothing wrong with that. And most founders want to enjoy the work that they do even as the retirement horizon comes closer, at least more days than not.
Slowing the process down and extending the timeframe over which the transition is completed can be a great thing for both sides.
Thanks for reading,
David Sr.
