The day to transition the business to a new owner will surely come, whether if by default or by purpose. Overall, just 25% of business owners have done serious succession planning. The reality is that many owners probably won’t be able to sell their businesses when they’re ready, because they’re not taking proactive steps towards the transition planning now. Have you put much thought into what your business would look like the day you turn it over to someone else? What is your vision for the company in the next twelve months or even 10 years down the road? These are all questions that if answered proactively, could truly determine everything else that follows.
By proactively planning to transition the business to someone else’s leadership you can maximize the value of your business when the time, buyer, and terms are right. Working with hundreds of business owners each year,
B2B CFO® has compiled several do’s and don’ts to consider in your business transition plan strategy:
1. Do have a formal business transition plan and effectively communicate the plan. This includes what you plan to do post transition. A formal business transition plan puts the goals, priorities and strategies in place and in writing, for a successful transition. Without a clearly defined plan, business owners are leaving their personal and financial future to chance.
2. Do maximize the value of your business before and during the transition process. To help improve the value of your business consider strategies to build a diverse customer base, create recurring revenue streams, ensure consistent and healthy cash flow, hire top talent, demonstrate scalability, show a strong competitive advantage, and implement financial oversight and controls. There are several other steps you can do today to ensure tomorrow your business is attractive to a large pool of potential buyers.
3. Don’t set an unrealistic price. Setting a very high or unrealistic price on a business can lead to months of waiting and disappointment. Consider your industry, similar businesses, the economy and your marketplace when pricing your business to sell. On the other hand, business owners often price their business low simply because they did not get good advice, might be burned out and ready to sell or even worse, suffering from an illness or major financial crisis. Due diligence is key and having a qualified professional that can research other businesses for sale will help you set a realistic price and valuation.
4. Do make sure you have the right talent and management in place. If transitioning to key employees or family (as opposed to selling to a third party), do make sure that the people who are going to run the company have the skills, experience, and confidence to actually run the company. Remember, management first, then ownership. If they don’t have adequate knowledge of the business, then consider either postponing the transaction or employing/hiring an interim leader and utilizing outside training/coaching to bring the chosen party/parties up to the desired level of readiness.
5. Do have a qualified “team” in place to make a successful transition. Enlisting experts to help you sell and transfer your business is crucial to your success and to obtaining the most cash. Research their qualifications, track record and deep experience first as a non-qualified team can cost you time and money in the long run. In order to get the highest value for your business and to negotiate the selling process effectively and efficiently, it is imperative that you enlist qualified professionals that you can trust with confidential information. Experts that can help during the transition included an accountant, CFO, tax expert; lawyer; business broker; business appraiser/valuation expert; and banker or other financier, if third-party funding is needed.
6. Don’t try to do it yourself—selling is complex! You may be a determined do-it-yourselfer, but selling your business is not a job you should attempt to do alone. Even for a relatively small business, there’s a host of federal, state, and local regulations and tax issues to consider and critical documents and contracts to negotiate. Selling your business might be one of the most important decisions you make so getting it right the first time will have lasting impacts.
7. Do be prepared to expect the unexpected. Many business owners have put decades of hard work into building their company and naturally will have emotions tied to every step of the transition. Selling a business is a job in itself, and preparation is crucial. But, as we know, even in an ideal world with proactive preparation, unexpected situations happen like delays and ongoing negotiations. Bottom-line, expect set-backs and try to remain calm and cool.
8. Don’t overlook legal and tax considerations in the process. When you sell your business, you may face a significant tax bill. In fact, some owners have been known to wind up with less than the purchase price in their pocket after all taxes are paid! Again, with skillful planning and expertise on your side, it’s possible to minimize or defer at least some of these taxes.
9. Do have your financial records in order. If you’re considering selling your business, it’s important to remember that prospective buyers are looking for clear facts and financial records on your business to prove whether it is a profitable investment for them. Some records to be sure to have on hand include two years of profit & loss statements, current balance sheet, cash flow statement, business tax returns, copy of the current lease, insurance policies, employee agreements, and more.
10. Don’t forget about culture! Whether you’re selling the company to a third party or transitioning to other family members, consider the culture and what changes may occur that could affect your legacy. Your successor may know the business inside and out, but their approach may also cause family or employee discord. When transitioning the business to new leadership, find a buyer that holds similar core values and management philosophies as you to keep the company culture intact and employees happy.
11. Do have a wealth manager in the mix. If you are successful in selling your company and walking away with a large check, a professional wealth manager can assist you in best utilizing your means to accomplish the various goals you have in mind for your lifetime with the funds from the sale. Successful successions don’t just happen, they are planned.
To learn more about how B2B CFO can help you with your company’s transition planning and to build a capable transition team, contact us today.