“If you don’t know where you are going, you might wind up someplace else.” – Yogi Berra
You can’t get anywhere if you don’t know where you’re going.
It’s also obvious that once you know where you’re going, you must lay out a path that will take you there.
But things that are obvious are not always easy. It can be helpful to adopt a process customized to your needs but based on an approach that has worked for others in the past.
Neil Checker’s story was typical of most business owners who have made the tough decision to leave their companies. At age 54, he was confident of having a meaningful & purposeful “next stage of life”, and was ready to leave his 25-employee commercial sign-making business. Neil was thinking of selling to one or two of his key employees, but he still had a nagging thought … “Is this the right choice for me and my business?”
The Common Predicament & The Solution
Many of you find yourselves in the same predicament. You can envision your life beyond business ownership, but you don’t have a clear picture of how to transition your business to the successor you choose, for the money you want and on your timeline.
So what do you, and the Neil Checkers of the world, do?
First, understand that transitioning from your business is a process. The realization that “life after” transition can be as fulfilling as “life before” (as a successful owner) is simply the first step.
The next step is to figure out a way to approach your transition in a methodical, logical, and rational manner. Most owners do not put enough thought and planning into their future ownership transition and find out too late that insufficient time is available to transition successfully. Often, they believe there are systems in place that will take care of everything when they decide they are ready. Maybe, they believe they’ll figure it out when they get there. Time is not their friend in this case, and that can be a big problem for the owner’s future.
If that describes your situation, you are not alone.
Most business owners, and their advisors for that matter, don’t know there is a business transition solution that is methodical, rational, and can be tailored to the owner’s unique goals. This solution not only helps owners ultimately transition out successfully, but also enhances business value in the interim. It is a great business strategy that rewards those who have the courage and foresight to implement it.
So how do you go about implementing this great business strategy?
Where To Begin?
Setting goals and objectives, whilst also understanding the value of your business, are the first steps toward planning for your future business transition. Based upon what you want and what you have, you can then examine and choose a proper path for you: be it a sale to a third party, a transfer to children, a sale to an Employee Share Ownership Plan (ESOP), a sale to a co-owner, or retaining ownership of your business until the very end.
As part of this process, you must also consider what would happen to the business and your family if your death or disability precedes your “best outcome” plan.
But just knowing the process, and proceeding down the path to transition out of your business is insufficient. How will you reach your destination if you can’t describe how you’ll get there?
To achieve success and reach your desired destination, you should see your business transition as a project, and all successful projects start with a plan. A Business Transition Plan. The plan should:
- Identify your ownership, financial and other objectives that must be considered; and
- Document how you are going to achieve those objectives
Once you have documented the Business Transition Plan, you should follow a process that: –
- Assigns responsibility for each task to be completed throughout the execution phase; and
- Sets dates for each task to be completed; and
- Designates the person responsible for completing each task
- Regularly checks on the status of the tasks, and assigns new tasks as old ones are completed
As skilled and successful as most business owners are, they generally can’t create and execute a comprehensive Business Transition Plan. After all, rarely have owners made a career of leaving businesses. Owners who attempt to create their own Business Transition Plan can leave critical elements unattended and run the risk of failure, resulting in a loss of money, time, and/or their own happiness.
To do it successfully, business transition planning should be a multi-disciplinary effort that requires you (as the owner) and your advisors to work together. You will probably need legal, accounting, tax and financial planning advice for your plan to succeed. If you decide to sell to a third party, you may also require the services of a business broker or investment banker.
But remember, no advisor can be an expert in all aspects of transferring a business, because no profession possesses the breadth of knowledge necessary to appropriately advise on the wide variety of issues associated with a business transition. It’s the same concept that one tradesman cannot design and build your new home on his own – he will need to work with other professionals to get things done right.
How To Run & Transition A Business At The Same Time
So how can you manage all of this when you are concurrently running your business?
Option A – find more time in an already full calendar to manage the whole process; or
Option B – engage a Business Transition Project Manager. This person can run the whole process on your behalf including helping you find the right advisors for your business transition project, and then managing the planning, documentation and execution phases until your objectives are achieved.
Define Your Goals & Objectives
Once you have a solid team in place, you must then think through your personal and professional goals.
- What are your plans after your transfer the business?
- How much money do you need from your business to live comfortably?
- Who do you trust to continue running your business successfully?
- Do your children want any involvement in the business after you leave?
These may seem like straightforward questions that you may have thought of, but you may be surprised how often the answers to these questions may change.
Communicate frequently with your family, co-owners, top management, and advisors, to be sure everyone’s goals and expectations are in line. Your plan for the future can change dramatically if your goals and objectives begin to shift.
So What Does It Take To Plan For The Future?
- Understand that there is a proven process that can be followed. Learn as much as you can before you make final decisions
- Commit to see the process through—holding yourself and others accountable
- Document your goals, objectives and decisions and create a written plan with a timeline and responsible persons
- Enlist an experienced team of professionals to help guide you through this process. These professionals should more than pay for themselves by putting money in your pocket. If they cannot, you have the wrong team
Neil Checker concluded that implementing the business transition process was a great business strategy. He treated his transition as a project, and the project delivered a 71% increase in his business value over 4 years, before selling to a strategic buyer looking to expand their existing business’s geographic reach.
At age 58, Neil had achieved the freedom to do what he wanted, whenever he wanted, without any business remorse, financial restrictions or personal regrets. He moved on to the next stage of his life a very happy man.
So, what’s your goal for the future?
The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact a lawyer or a tax or financial professional. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial professional. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Master Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice you need.
Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.
