Retirement: As a founder of the private equity firm, Post Capital Partners, it is my experience that the most common reason for a business owner to step down is a desire to retire - regardless of their age.    According to a 2004 Booz Allen study on departing CEOs[1], the average age of departing North American CEOs was 58 years old. Although this is a relatively young age, combined with health issues and a desire to enjoy their retirement years, business owners may choose to step down.

Health Issues: A business owner or CEO with health issues can create significant concerns within and outside the company. For example in 2004, Kraft CEO Roger Deromedi was hospitalized for initially undisclosed reasons, which caused great consternation within the company and the investment community. For a small business, this effect is multiplied because a small business owner is usually involved in almost all aspects of the operation and has limited management support.

Disagreement among Owners: For companies with multiple owners and / or outside investors, disagreements can easily arise among the different constituents. Each of these parties has their own goals and long term outlook for the company. For example, last year we acquired a business where the owners had a fundamental difference of opinion on the future strategic direction of the Company.  The disagreement was so severe that the owners went through a time consuming and costly arbitration to resolve their issues. Unfortunately after several years of conflict they were still unable to resolve their differences and were required to sell the Company.  As could be expected, the employees’ moral and performance was negatively impacted from the lack of clear direction and leadership from the owners.

Difficulty Addressing Current Business Challenges:  Small businesses are typically constrained by a lack of capital and limited management resources. In many instances, a small business does not have the resources to address new business opportunities or to react to a changing environment that adversely impact the company’s performance to decline. My firm, Post Capital is frequently approached by business owners who need to raise capital or sell all or a portion of the company in order to confront current business challenges they are facing. 

Succession: Formulating a succession plan is one of the most underappreciated decisions that CEOs and business owners face. Everyone involved underestimates the time and thought that is required to successfully find and put into place a successor.  We see many situations where the business owner would like one of their children to take over the business. However, in many instances the children are not interested in the family business or if they are interested they do not necessarily have the required talent or expertise. Even if a child has the desire and qualifications to take over a family business, complicated financial issues still need to be addressed. The parents may still need to receive distributions from the company in order to sustain their life style. Other children who are not involved in the business may feel a sense of entitlement to a share of the company’s cash flow.  These are just a few of the issues that need to be resolved in order to ensure a successful transition.  While succession issues have recently been widely publicized in large public companies such as Disney, it is even more challenging for small family run businesses.