Are You Prepared for a Business Transition?
At some point, we all need to transition the businesses we have built. That day may come in a year or in forty years. It could be in pieces over time or all at once, but it will come. Have you thought about what is going to happen when that day comes for your business?
Most business equity transitions happen during our lifetimes. So, for now, I will focus on those and leave the transfers that occur at our death for another time. Of the types that happen during our lifetime, there are external transitions and internal transitions.
External transitions might include selling your business to a competitor or selling to a new owner that is continuing your business. The types of external transitions are as varied as our businesses are. Some are simple sales for cash, based on a mutually agreed upon price. Some are sales of part of a company or only for specific business products or intellectual capital. Some are even more complex, for example, where you end up taking on equity in the acquiring company and stay on as an employee or partner in the new venture. The key to any external transition is to go into it with clarity on what your goals are and to have a clear understanding of the monetary value of your business. Financial advisors, CPAs, and life coaches can all lend a hand in helping you get clarity on what your personal goals are. CPAs and business brokers or consultants can help with the valuation piece. Your job is to continue running your business as usual and keep your focus on what you can control during the process right up until the contracts are signed.
Internal transitions can be excellent for yourself, your family, and your company but must be done with extraordinary care and are always customized to your specific needs. As with an external transition, it is important to clarify your goals and to understand the value of your enterprise, but you also need to go beyond that to understand the capabilities of the internal person or team that you hope to transition your equity to. Are all of the right people in place? Are they in the right seats? Do they have the resources to pay for the equity themselves or do we need to engage a third party lender? Do I want to transition all of my equity at once or do I want to do it over time? How much control do I want and for how long? The questions can go on and on, but the answers to all of these need to be woven together to create a strategy that helps both you, the company, and your successors to realize your goals.
If you haven’t thought about your business transition or haven’t figured it all the way through, start with these three questions:
- What are my personal goals for money, time, and legacy in this transition?
- Is my business in a position to transition and will it accomplish the goals for each of the three items from question number one?
- If I know things need to change or I am not sure if they need to, who do I want to help me figure out the next steps? (CPA, Coach, Advisor, etc.)
A business transition lies down the road for all of us. Being mindful today about how we want that transition to occur and what we need to do to make it a reality is what actually allows us to do it well later on.
Have any questions? We’re here to help!