Big Picture - May 2018 - 18

business + management

Cashing Out
When you're ready to retire, consider leaving your company in the hands of your
biggest supporters: your employees. | by Marty McGhie

I

was recently on a networking trip with some business-

BIG PICTURE

May 2018

men where we found ourselves playing an extensive
amount of golf. During one of the rounds, I partnered
with a friend who owns a successful construction
company. He revealed that he wants to transition himself
out of his business and retire to (surprise!) play more golf.
Over the course of our conversation, he told me that he has
considered various exit strategies that could provide him with
a smooth business transition while maintaining the legacy that
he's built with his company. After discussing these options
with a few financial advisors, he ultimately decided to sell his
business to his employees. As we discussed the particulars, I
realized that this is indeed a very viable and attractive option
to consider when retiring.
This topic may seem a little familiar. In Big Picture's
October 2016 Business + Management column, I identified
three options available for business succession: liquidate your
business, sell your business to an outside party, or pass your
business down to your heirs. This month, we'll focus on a
fourth option: sell your business to your employees.
In general, there are two paths to consider when selling
your business to your employees: through a management
buyout (MBO) or an employee stock option plan (ESOP).
Assess the pros and cons of both options before deciding
which route is the best fit for your company.
TRANSFER OWNERSHIP TO MANAGEMENT
Just as the name suggests, a management buyout involves
current management of the company using their own funds to
purchase the company's stock. They become the new owners

MARTY MCGHIE is VP finance/operations of Ferrari Color, a digital
imaging center in Salt Lake City, San Francisco, and Sacramento.
He is a partner and director of Signs.com. You can find him on
Twitter @Marty_McGhie.

18

of the business, and the former owner is cashed out. Although
an MBO typically only involves upper management, it's a very
effective way to keep your business running successfully
because you are essentially retaining the same personnel.
If you've dedicated time to mentoring your management
team over the years, then they're likely already running the
business, making critical decisions, and are responsible in
large part for your shop's continued success. This buyout
option is an excellent way to maintain that. On the other hand,
if an MBO sounds like an exit strategy that interests you but
you don't think your current management team has what it
takes to ensure the continued success of the business, then
honing the team's skillset should become your highest priority
and your sharpest focus. Many business owners have this
discussion years in advance so the management team is fully
prepared when the time is right for transition.
One frequent obstacle with the MBO approach is raising
sufficient funds to purchase your company. In an MBO
scenario, each individual manager is responsible for securing
the funds required to purchase their portion of the company.
One option to consider if this situation arises: If the business is
profitable and has positive cash flow, a financial institution will


http://www.Signs.com https://www.twitter.com/Marty_McGhie

Table of Contents for the Digital Edition of Big Picture - May 2018

Big Picture - May 2018
Contents
Insight
Wide Angle
Upfront
Extreme Vinyl
Business + Management
New Direction
Let’s Talk Industrial
R+D
Job Log
Big Picture - May 2018 - Intro
Big Picture - May 2018 - Big Picture - May 2018
Big Picture - May 2018 - Cover2
Big Picture - May 2018 - Contents
Big Picture - May 2018 - Insight
Big Picture - May 2018 - 3
Big Picture - May 2018 - Wide Angle
Big Picture - May 2018 - 5
Big Picture - May 2018 - Upfront
Big Picture - May 2018 - 7
Big Picture - May 2018 - 8
Big Picture - May 2018 - 9
Big Picture - May 2018 - 10
Big Picture - May 2018 - 11
Big Picture - May 2018 - 12
Big Picture - May 2018 - 13
Big Picture - May 2018 - 14
Big Picture - May 2018 - 15
Big Picture - May 2018 - Extreme Vinyl
Big Picture - May 2018 - 17
Big Picture - May 2018 - Business + Management
Big Picture - May 2018 - 19
Big Picture - May 2018 - New Direction
Big Picture - May 2018 - 21
Big Picture - May 2018 - 22
Big Picture - May 2018 - 23
Big Picture - May 2018 - 24
Big Picture - May 2018 - 25
Big Picture - May 2018 - 26
Big Picture - May 2018 - 27
Big Picture - May 2018 - Let’s Talk Industrial
Big Picture - May 2018 - 29
Big Picture - May 2018 - 30
Big Picture - May 2018 - 31
Big Picture - May 2018 - 32
Big Picture - May 2018 - 33
Big Picture - May 2018 - 34
Big Picture - May 2018 - 35
Big Picture - May 2018 - 36
Big Picture - May 2018 - 37
Big Picture - May 2018 - 38
Big Picture - May 2018 - 39
Big Picture - May 2018 - 40
Big Picture - May 2018 - 41
Big Picture - May 2018 - 42
Big Picture - May 2018 - 43
Big Picture - May 2018 - 44
Big Picture - May 2018 - 45
Big Picture - May 2018 - R+D
Big Picture - May 2018 - 47
Big Picture - May 2018 - 48
Big Picture - May 2018 - 49
Big Picture - May 2018 - 50
Big Picture - May 2018 - 51
Big Picture - May 2018 - 52
Big Picture - May 2018 - 53
Big Picture - May 2018 - 54
Big Picture - May 2018 - 55
Big Picture - May 2018 - Job Log
Big Picture - May 2018 - Cover3
Big Picture - May 2018 - Cover4
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