As a business professional, I have no doubt you have met a colleague or two that has told you all about the horrors of having business partners. I too have heard these stories, and they are vivid reminders about the weight these types of decisions should command. With that as my disclaimer, I want to share with you some of the benefits of having junior partners and go beyond the obvious potential benefits like collaboration, sharing work, infusion of capital, or synergies.
Specifically, I want to pay some lip service to the idea of sharing your equity with your employees. This isn’t just a business practice for the multi-million-dollar companies. As a small business, sharing equity can be done very simply (it can also be as complicated as you’d like to make it).
Many of my clients are the one-owner operations. This is how most companies start, so it makes sense. However, many of my clients are one-owner companies and they shouldn’t be. They have, or had, great talent internally, but are so focused on either building their business or fear losing control that they miss a huge opportunity to build the next generation up.
The consequences? Either you will have to pay above market average wages to keep your most talented employees or you’ll lose them to larger firms that can pay more or to competitors that have an ownership track.
Instead of waiting till you are ready to retire to transition ownership to the next generation, consider starting the process now. If you have a talented employee that you either want to retain or could see being a part of your succession plan, start small and build up from there. Explore using equity compensation or even selling a small part of the company to them and finance it on a promissory note. This is a great tool that allows you to begin getting your employees to think and act like owners.
As part of your retirement plan, this will also allow the company to continue to grow while you eventually work less. But, it takes time to see the benefits, so don’t wait until the last minute to start sharing!
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