Planning For Shareholder Exits
Having shareholders in your business is what fosters and nurtures business growth.
However, it’s not only making it attractive for shareholders to buy in that matters. It’s also extremely important to plan for shareholder exits as well.
Shareholders will eventually put their shares on the table at some point in your business journey. It could be because the shareholder would like to move on, retire or maybe just reduce their percentage of shares.
And, when that happens, you don’t want it to be a surprise. This can be a very hard situation to navigate for many reasons if you’re not prepared for it.
Imagine you haven’t anticipated someone wanting to sell their shares. Nobody in the company has the funds to buy them out, so the person ends up leaving the company (retiring or just resigning) but remains a shareholder. Even worse, they change jobs and start working for a competitor.
So, planning for shareholder exits now will ensure that you don’t find yourself in a difficult situation at a later date. In addition, it will help you make both the in and out process easy - which is the outcome you’re after.
When shareholders understand that it’s an easy and smooth process to buy or sell their shares, your company immediately gains more value and attracts better shareholder talent to the table. Think of it as a bonus incentive.
Another advantage to planning for shareholder exits is having the 'hard' and open discussions now with all current shareholders to save yourself pain down the track. This process fosters open and transparent communication at a board and shareholder level – remember “no surprises”.
At a management level, these conversations are a necessity. When you know that someone has the intention to sell or sell down share ownership in the future, you can plan accordingly.
It gives you plenty of time to secure the funds needed to buy out the outgoing shareholder. That way, when the time comes, both parties can rely on the fact that the buy-in/buy-out process will proceed based on what was agreed.
And these conversations should not be kept at the managerial level only. Informing potential next-generation shareholders about the opportunities that lie ahead for them is vital. It strengthens company culture. It can be an incredible performance booster as well.
So, planning for shareholder exits has multiple benefits. Be strategic about it, just like you are about any other aspect of your business. Get all your ducks in a row well ahead of time and avoid unnecessary headaches.
If you’d like to learn more, please take a look at my most recent podcast episode on this exact topic:
Click here for the podcast episode.
Click here to watch the video.
Josh ‘Shareholder Exit’ Stone
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