If you own a middle-market aerospace and defense business, it’s likely that your fingerprints are everywhere: customer relationships, pricing decisions, engineering, contracts, running the ERP system, etc. In founder-led companies, especially those under ~$100mm revenue, the owner often wears many hats. You know the products, you know your people, you have the relationships with the customers, and you have built the company’s reputation.

However, when you decide to retire and sell your business, buyers will probably focus on the level of dependence the business has on you. In addition to Key Person insurance (which we addressed in Deal Note® 153), potential buyers may also require larger escrows, push for a long-term employment agreement with you (2 – 3 years), insist on seller rollover-equity (so you stay invested), or structure the sale with earnouts tied to continuity of key customer or supplier relationships. These are all tactics to reduce the perceived risk associated with your departure from the business. The more dependent your business is, the more buyers will discount their valuations.

So, what should you do? The key is to do less!

This isn’t something you fix quickly, but if you’re thinking about retiring and selling your business in the next 3–5 years, start transitioning now. Identify and develop internal leaders, transition key customer relationships gradually, formalize systems and standard operating procedures, and build a culture in your image that does not require your presence day to day. For a founder selling their business and retiring, the goal is to build a management team and culture that functions and grows without you at every internal and external meeting.

If you want to retire in 2-3 years, start to work a 4-day week now and transition to a 2-day week, long before you sell. Nothing gives buyers more confidence (that the business can run without you) than hearing from the management team that you, the owner, only show up to work a few days each week.

Have a great day,

Max McFarland
Associate