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Income & Share Ownership Planning (ISOP) could be the exit strategy you’re looking for

When you think about your ideal exit plan, what would it include?  Would you like to gradually scale back from the business, retaining a financial and emotional investment in the business for as long as possible? And, knowing that too many companies fail after a sale, I’ll bet you also want to secure the long-term future of the company and your employees.

After many years of working with business owners, developing an understanding of what really works and what doesn’t in succession planning, the Kirkpatrick & Hopes team began to look for new ways to help clients plan for their future. We wanted to develop a succession planning method that helped businesses survive the change in ownership, and gave greater financial and emotional security for the exiting business owner. Out of this, Income and Share Ownership Planning (ISOP for short) was born.

ISOP is a structured approach to succession planning that gradually passes ownership of your company over to your employees (which may or may not include family members). This allows you to maintain an interest in your business while freeing up more personal time – and it also allows you to benefit from certain tax incentives for employee-owned companies.

There are four key stages to ISOP planning: Clarify, Plan, Implement and Manage.  In each stage, there are specific steps we take to ascertain goals, plan the handing over of the business, implement those changes, and monitor progress on an ongoing basis. The most common method we use is to create a new company, owned by shareholder employees, and to pass the shares in the old company to the new one. However, although it’s a very structured process, the activities are tailored specifically to the business and individuals involved.

A typical ISOP project takes five years to get to a position where the new employee owners are bedded in and the exiting owner has been paid for the share of the business that he or she has passed across. During that five-year period, we closely monitor the changing circumstances of the business and the relevant tax, accounting and legal changes that may affect the original ISOP plans.

What if you would rather just sell your business outright to a third party?  That’s fine – in fact, the ISOP method works well as a first step towards an eventual outright sale.  As a result of the ISOP succession planning work, the business should ultimately be worth more and, because it will be able to function more independently of you, it should actually be easier to sell.

In my next post, coming soon, I talk through the various stages and steps involved in the ISOP process. If you’d like to know more in the meantime, get in touch with us at Kirkpatrick & Hopes.

This post is based on an extract of my book Do More of What You Love: The New Approach to Business Succession Planning, out now.

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