As a Colorado private investigator, the end of the year is a good time to reflect on your firm’s future.
Private investigators perform valuable services, often for law firms or other organizations that are also service-oriented. Reputations in this line of work are developed on personal performance and the seasoned expertise of the owner(s) of the firm. But what happens to that legacy as you consider retirement or other exit options?
The legacy question should prompt you to consider the state of your firm’s transition plan, if one even exists. It’s a good idea to start planning, or planning for a transition plan, as soon as possible.
Advisors suggest that you start thinking of the plan at least five years ahead of your target exit date. This gives you ample time to identify candidates and get them up to speed on the various things they need to know to run a private investigation business. Others recommend beginning the process even sooner, to provide a contingency for unexpected issues.
There are tax considerations for any ownership transition or succession. Make sure you have knowledgeable advisors lined up to help you make the right decisions that will help you achieve your goals for yourself as you exit as well as what you want as the legacy of your firm.
Exit Strategies
Here are a few common options for transitioning ownership in private investigation and other professional services firms:
Sell: You could potentially consider selling the firm to, or merging with, a competitor. Other potential buyers might be existing partners or key employees or other identified outside candidates. These types of acquisitions are sometimes difficult to finance.
ESOP: Employee Stock Ownership Programs are more common in design and engineering service firms. Many companies use the lure of an ownership option as a recruiting tool. It also allows ownership to transfer on an extended timeline as identified partners, senior investigators or other existing employees increase their ownership stake. An ESOP structure can be a cash-efficient and tax-beneficial method of transitioning ownership. Professional service firms often don’t carry high debt loads, which can help make an ESOP transaction more feasible. Consider that as baby boomers age, many professional service firms are seeing owners and partner retire in clusters.
Dissolve or close shop: While this is certainly an option, a good private investigation professional service has brand value. What if you had to stop work due to circumstances out of your control, such as a healthcare or other emergency? Just another reason to start your succession planning early.
To get your plan in order start with these steps:
- Identify Candidates and Transition Goals: Maybe there is a family member interested in taking over. Maybe not, but either way, make sure identified candidates are high performers but also demonstrate leadership ability, good judgment, and have or can develop business acumen. If there is no one in the business with these qualifications today, then consider making the investment to develop these qualities in your existing talent or begin a search externally.
- Educate and Train Your Candidates: Allow for time to show them what leading the firm entails. How will you backfill their current role (assuming this candidate is maybe an existing Colorado private investigator)?
- Check in and Follow Up: It’s a good idea to schedule a regular check in. Follow through to make sure your plan continues to make sense. Are interim milestones being met? Sometimes setbacks occur as the business or circumstances change. Maybe your identified candidates end up pursuing another opportunity. That circumstances is also a good reason to consider coaching more than one candidate at the same time.
So, you might want to put succession planning at the top of your 2023 to-do list! Please feel free to add suggestions for additional considerations in the comment box below.
Last but not least, all of us here at Ross Investigators wish you a wonderful holiday season and best wishes for the coming year!
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