100% of businesses eventually change ownership. Who is the next owner of your business?
Do you have a good answer for the question above? Is it written down? Is the “next owner” prepared? If you don’t have good answers to those questions, you are not alone. Only 16% of business owners have a discussed and documented succession plan in place [1].
Why so Few?
Well, as they say, “it’s complicated”. There are so many questions to answer to get transition plans done right, that often the short-term needs of the business take precedence—the “Tyranny of the Urgent” as Charles Hummel would say.
The result, of course, is that few transitions go well. Only 25% of businesses that go to market actual sell at all (let alone get a good price) [2]. So, with those sobering stats in mind, what is a business owner to do?
I suggest there are three key elements to an ideal business transition:
Key #1: Define the End Goal
Start with the end in mind. Think of this as the “right brain” or the “creative” part of the process. Ask yourself these questions to get started:
What do you want the business to look like when you are gone?
- How long do you want to keep working and in what capacity?
- Would you prefer to keep the business in the family or not?
- Who do you think the best next leader is for the company?
- How much do you need from the business to live comfortably in retirement?
Talk to your management team and your family about these issues. Get their input. You will likely encounter some pleasant and not-so-pleasant surprises from asking for input. As Ken Blanchard is famous for saying, “Feedback is the breakfast of champions!”.
GET THE BUSINESS TRANSITION ASSESSMENT
Determine your level of preparedness for your upcoming business transition.
Key #2: Develop the Plan
Now that you have a clear picture of where you want to go, how are you going to get there? Think of this as the “left brain” or “X’s and O’s” part of the process. Ask yourself, “What do I need to do to move toward the ‘end goals’ that I’ve identified above?”. You will need a like-minded team to help you put a plan in writing. Team members may include:
- Valuation Expert (get a third-party valuation done of the business)
- Investment Banker or Business Broker (put a deal book together, if necessary)
- CPA (tax considerations)
- Lawyers (transaction and estate planning)
- Financial Advisor (legacy and financial planning)
Once you have a written plan it is time for the third key step to a successful business transition:
Key #3: Implement and Communicate
The famous writer, Cervantes, once wrote “to be prepared is half the battle”. So what is the other half? Pablo Picasso suggests that, “action is the foundational key to success”. They were right. Plans without execution are worthless.
It is now time to launch your team into the “action” part of the plan. In my experience, it often takes five to 10 years to get ownership transferred and the next generation of leaders prepared--especially if the sale is done to employees or family members. So, it is important to get started early.
The benefits to getting a business transition done well are numerous—family harmony, financial peace and the legacy of a thriving business.
BUSINESS TRANSITION ASSESSMENT
Determine your level of preparedness for your upcoming business transition.
Sources
[1] http://pwc.com/gx/en/pwc-family-business-survey/assets/family-business-survey-2014.pdf
[2] Cash Out Move On: Get Top Dollar, and More, Selling Your Business by John H. Brown
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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