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.
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:
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.
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