Educate May 2019

Business Transition Strategies Start with a Plan


Written By: Jay Hutto

If you own a business, now is the time to start planning for your business transition. You should begin discussing
this issue now with your CPAs, business advisers, attorneys, financial advisers or insurance professionals.

If your advisers haven’t brought up this issue yet, it may be because they just don’t have the experience they need to guide you to a successful business transition. Most advisers focus their attention on compliance-type activities. They solve specific problems or issues that clients bring to their attention. To find out their experience, just ask your current advisers about their experience with successful transition planning.

The goal should be to find at least one adviser who can help you facilitate, design and implement your business transition strategies. It is ultimately your responsibility to prepare for your own exit from your business and have a plan before it is too late. At some point, a business owner should also consider confidentiality agreements for all parties involved in the process before you share information about your company.

Planning for an owner’s exit is definitely a multi-disciplinary approach and generally requires multiple advisers through the process. Exiting your business is much more involved than selling your home, and it can require sophisticated, experienced advisers to guide you through the process.

First, a business owner should become educated on all of the options and resources associated with a business transition.

Second, a business owner should work with their experienced adviser to develop a plan for making sure that the future business owners/management team have the knowledge and experience to continue running the business after the transition is complete.

Third, the owner must execute the plan and work hard to transfer management responsibility after obtaining guidance on how to develop and execute a successful management responsibility transition plan. An owner will generally use the experienced adviser to provide guidance or help develop the management team while the owner transfers management responsibilities and executes the overall transition plan.

There are many options for a business transition that may include a family member, an employee, a larger business, a private equity investor or a competitor. The transition planning process generally includes the following steps:

  • Develop action items that need to be completed in order to meet a business owner’s personal and financial objectives.
  • Coordinate the efforts among the business owner, management team and adviser team to establish an efficient and effective management responsibility transition process.
  • Develop SMART (Specific, Measurable, Achievable, Relevant and Time-bound) goals.
  • Meet with advisers to work through and modify your objectives so that they are attainable or suggest alternatives.
  • Develop your management team, transfer management responsibilities and resolve issues.
  • Maximize your business value.
  • Transition your business on your terms.

The business owner will lead the efforts to transfer management responsibilities, as well as create an overall plan, but the experienced advisers can help throughout the process. The business owner is the person who knows what goes on in the business, who is doing what tasks, how the tasks relate to the overall operation of the company and which tasks need to be transitioned from one person to another as part of the transition plan.

The first step is to educate yourself, and it is never too early to begin the business transition process. 

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