My lawyer and accountant hate my new succession plan. Help!

Dear Aunty B,

I am 45 and want to retire. I am sick to death working 14 hour days and collapsing in a heap on the weekends so I have come up with a plan.

I run a creative agency and my plan was to take on a new employee, give him a four month trial and then if he works out offer him equity in the business (he would, of course have to pay something as well.) Then over the next few years he could run the business and get new clients and I could just be head of creative development (my dream).

Then I would sell the remainder of the business to him. I already have the right person for the job who is very keen on this plan (although he is a bit young at 29.) The problem is my lawyer and accountant hate my new plan. They say I have a very successful business (we have not made a profit for the past two years because of the GFC but it’s getting better again now) and question why I would ever offer anyone equity ever.

They say I should set up a separate company and only let him have equity in that. The problem with that is he doesn’t want it. He wants equity in MY business.

Aunty, please help because my gut says I am right but my lawyer and accountant are doing my head in. I am also worried that I will lose this guy if I don’t give him what he wants. Also, do I tell him I plan to phase myself out of the business?

SR,
Brisbane

Dear SR,

Let’s think for a second of the role of your accountant and lawyer. It is to protect your assets. And they are doing a very fine job of that.

They have also come up with a great solution: set up a new business and let him have a share of that. But the problem as I am hearing it, is he doesn’t want that. So your job is to make him want that.

Here is what you should do.

Tell him your plan: that you want to retire and are planning in effect a management buy out or to take in a business partner who will eventually buy you out.

Tell him step one is to work for you for six months at a handsome salary. If that works and certain KPIs are met, the second step is to set up a new company that he owns 40% of. He will run that company but he has to salary sacrifice: so if he is on $120,000, then he gets only $70,000 for the next two years. In that way he earns his stake – after all you are putting in all the funding for staff costs, rent, utilities and everything else.

If that works and again certain benchmarks are met, tell him you will then merge the two companies and he will have a large stake in the merged venture.

Make it clear to him he can’t get to stage three without going through stage one or two.

Make sure you have the company valued so he knows what the valuation is.

And make sure he is clear about the hard work that has gone into building its reputation in the marketplace.

I would also approach some potential purchasers in the marketplace for a coffee and just to shoot the breeze. You may find a better partner who has more to bring than just a young man’s brashness.

So yes, listen to your lawyer and accountant. But understand their perspective. And urge them to see the situation from your perspective and come up with better solutions than don’t stop negotiations dead.

Good luck,
Your Aunty B

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