When Design-Firm Principals Retire

Principals looking to retire or pursue other ventures have three options for securing the firm after their departure, says David Baker, a frequent HOW Conference speaker and president of ReCourses, a creative-services consulting firm in Nashville, TN. They can sell the business to another firm, sell it to employees or simply close up shop.

Because much of the perceived value of a design firm is often wrapped up in its principal, his or her departure can zap the firm’s reputation, leaving little value to sell or pass on. A handful of firms can sell out to larger rivals or ad agencies. But for small firms with at least four staffers, Baker says that selling to employees might be the best strategy.

Employees rarely have cash to buy the studio outright. But they may be able to contribute capital over time, making payments during the last few years of your ownership and continuing into your retirement. Tips for making a graceful exit include:

1. Start the transition before you intend to leave, but don’t make it last more than three years. Waiting longer is "like a senior pastor still at church while the new guy’s there," Baker says. "People eventually want to spread their wings and put their own stamp of approval on things."

2. Delegate account management and creative-services management duties to key employees before you leave, preferably before you even begin the transition to employee ownership. That way, you decrease the risk of the firm losing its identity and key accounts when you retire.

3. Be prepared to offer advice to your successors after the sale. The firm might still need to draw on your expertise from time to time.