When you really think about it, you realize that 100% of businesses will transition… whether it’s to a family member, a buyer, or simply closing the doors. Every company undergoes a transition of some kind.
Unfortunately, one study by the Exit Planning Institute found that 76% of business owners regret transitioning their company within the first 12 months.[1]
It begs the question: Why?
In an effort to explore this guarded topic, we asked our good friend Kevin Garland to join us in a dialogue on the subject. Kevin was a long-time private equity executive before recently being named CEO of his father in-laws $2 billion dollar family business. During his career in private equity, he looked at hundreds of businesses and ultimately deployed over $3 billion dollars across 19 acquisitions. Suffice to say, he knows a thing or two about business transitions.
Kevin shared a few key insights on common mistakes business owners make before transitioning a business that may lead to dissatisfaction. We’ll tackle the #1 Mistake to Avoid as a business owner.
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Determine your level of preparedness for your upcoming business transition.
No Written Succession/Transition Plan
Many business owners do not take the appropriate steps to maximize their value or minimize their tax burden before they sell the business. In fact, only 16% of business owners have a documented succession or transition plan.[2] This nearly always leads to a decreased valuation – i.e. less money in exchange for your business. And who ever heard of someone feeling happy when they sold something for less than they thought it was worth?
Moreover, a Wilmington Trust study revealed that business owners who take the time to plan for transition report increased valuation, minimized taxes, and improved family harmony.[3]
More money, less taxes AND my family harmony is improved? I’ll take an order of that, please.
Kevin graciously outlined a few key items that will improve your odds of a successful transition:
- Do an honest assessment of your business and succession plan with outside input and accountability.
- Write down a plan and discuss it with your family and kids
- Execute the plan. Don’t put it off.
- Develop the next generation. Don’t hold on too tight.
- Surround yourself with trustworthy and competent advisors. Hire a true professional to sell the business.
To summarize, if you’re a business owner, don’t put off the planning process for another second. It might be the difference between a great valuation or a bad one, or the difference between exiting with joy or exiting with regret.
BUSINESS TRANSITION ASSESSMENT
Determine your level of preparedness for your upcoming business transition.
Sources:
[1] http://www.exit-planning-institute.org/wp-content/uploads/2015/05/State_of_Owner_Readiness_2013_Report.pdf
[2] https://www.pwc.com/gx/en/pwc-family-business-survey/assets/family-business-survey-2014.pdf
[3] https://www.wilmingtontrust.com/repositories/ebook/The-Power-of-Planning/index.html#p=17
Disclaimer: Our intent in providing this material is purely for informational purposes, as of the date hereof, and may be subject to change without notice. This article does not intend to constitute accounting, legal, tax, or other professional advice. Visitors and readers should not act upon the content or information found here without first seeking appropriate advice from a trusted accountant, financial planner, lawyer or other professional.
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