One of the often-mentioned words in exit planning is ‘legacy’. If you have owned and built a business over many years understandably you may feel the desire to leave a mark after your tenure of that business has come to an end. So how can a legacy be incorporated into your exit plan?

The start point is to work out what is meant by a legacy and in what form it might take. For many owners the primary legacy is the business itself, or perhaps more pertinently the opportunity the business might offer to someone else. Two of our clients are currently in the process of passing ownership of their business to their managers, just as they took on the business from previous owners. They were given an opportunity and are now providing another succession boost.

Others may look for a legacy in an enduring brand or name that may survive a change of ownership. In some cases this means having a reputation in the local community and in others it is more a vanity wish of having a name that lasts.

Legacies may also exist outside the business in the form of a charitable act, fund or foundation, or perhaps as a trust to undertake some activity important to the business owner. In the case of the latter it could be something like a training or experiential opportunity for young or disadvantaged people.

The point is that there are many things a business owner can do to ‘leave a mark’ – what form it takes may be very personal or simply pragmatic. If you have benefitted from owning a successful business over many years you may feel fortunate, even privileged, to have had that opportunity and therefore want to pass on some form of benefit to others.

However one of the fascinating aspects of exit planning is understanding priorities and potential trade-offs. Some legacies directly cost money – setting up a charitable foundation for example will involve using some of the money generated by the business that might otherwise go to the owner. Other legacies may involve some compromise, for example if the owner insists they will only sell the business to someone who retains their name or brand they may limit their options for a sale and reduce the potential rewards.

In most cases, if protecting a legacy means compromising the sale value or accepting conditions or constraints post-deal, money wins out. But not always.

Personal choice and motivation play a big part in deciding how to build and execute an exit plan. Setting aside some of the proceeds for a cause dear to you is a relatively straightforward way to leave a legacy. Potentially more powerful is to pass the business on to people who can then benefit as you have done and possibly repeat the cycle when they eventually step back.

Three types of exit fall into this category:

1. an inter-generational transfer to the owner’s children or other relatives
2. a management buy-out (MBO) by people who’ve worked for you and you know and trust
3. an Employee Ownership Trust (EOT) where the benefits accrue to the whole workforce.

In each of these cases your legacy is in part conferring financial opportunity to people you know and in part it is securing the brand, culture, ethics and community presence you have built whilst being the owner.

You may wish to go a step further to secure a certain type of legacy by becoming a B-Corp whilst you are still the owner so that the legacy you leave is further built into the essence of the business. In this case a business that meets high standards of social and environmental performance, transparency and accountability.

Legacy is a big subject and it’s important to build it into the early stages of any exit plan. It’s your business and it’s your legacy – you decide what you want to do and we can help you achieve it.

(Image by user14908974 on Freepik)