“Time is on your side.” It’s a phrase used often in the investment community to help individuals understand that investing your time early can pay dividends in the long run. The same wisdom applies to business owners planning for a transition. Laying the groundwork early — and asking the right questions — sets business owners up for success when they ultimately decide they’re ready to move on.
The more diligent and focused business owners are on improving the value of their business, the more likely they are to achieve their desired outcome. Put simply, more time spent upfront on improving the pre-transition value of a business most often translates to higher sale proceeds and a smoother transition.
To be the most effective in any business transition, business owners should first partner with experienced advisers who specialize in such transitions. The best adviser is one who is strategic, proactive and asks questions to fully understand not only the financial side but the equally important emotional side. It’s critical that advisers also work with the business owner’s centers of influence (i.e. established board of advisers, bankers, attorneys and involved family members).
Once the proper team is assembled, in-person meetings often serve as a key opportunity to ensure all parties are on the same page. Having every stakeholder at the table sets the stage early in the transition process. The sale of a business is quite often an emotional process, so it is crucial to seek alignment early on and for the adviser to ensure each party is moving together from the outset.
Several considerations will lay the groundwork for the transition. Business owners should consider the following questions: What are your goals? What legacy do you want to leave? How involved is your family? What does the family desire? What is the intent of the sale? How do the employees fit into the process/result? They should also consider potential obstacles that could affect a transition, including economic factors, logistics, geography and taxes/tariffs.
After determining the motive and desires, a channel for the transition needs to be established. During this phase of a business transition, the owner moves from establishing the “why” to the “who.” Will the business stay in the family or is a broker needed to identify potential buyers? If needed, skilled professionals can help business owners identify target opportunities, conduct due diligence and evaluate all viable options.
Finally, business owners must consider how they intend to arrive at their goals and what work they must undergo in the interim to achieve these goals. During this final stage, advisers will combine the why and the who in order to get to the “how” to properly lay out the road map for success. Weighing all factors, the adviser will then be able to provide the business owner with the best options to maximize results.
Many times, plans will be subject to change, and the parties must be able to navigate through these changes. It will be important for the adviser to help control this process and ensure that while the emotional issues are addressed, they don’t play the only role in achieving the goals set out by the team throughout this process. Sellers may get cold feet, family members may decide they want to play a role in the business, buyers may question certain aspects of the information in their due diligence, all issues that may throw curve balls that the adviser can work through to help keep all parties on track. Having the right professional advisers as part of the team will help business owners expect the unexpected and navigate uncontrolled surprises.
The more preparation and groundwork laid early on, the smoother the transition — and ultimately, the better the value for the seller. When it comes to planning for a transition, business owners should take a step back, weigh all potential outcomes, stay focused and rely on their team assembled. When done properly, they will be able to chart the course for a legacy worth leaving.