4 things COVID-19 taught the middle market about transition planning

Strategic advice

What owners wish they’d done sooner

Chances are, you’re not one to make hasty decisions regarding the welfare of your business. Having a solid transition plan in place means you shouldn’t ever have to. And that’s particularly important right now, when some business owners are getting up to 10 calls per week from prospective buyers, private equity firms, and other investors.

According to a report on business transitions in the middle market, “Change happens in all businesses. But, as growing businesses that fuel the U.S. economy, middle market companies are more dynamic than most.” The report, which surveyed owners in 2020, noted that 98% of those who were “totally prepared” for their business transition were “extremely satisfied” with the results, compared with just 33% of those who prepared only a little bit or not at all.Disclosure 1

In fact, the pandemic has hastened some owners’ exits from the market in such a way that they may have left money on the table. For many who only contemplated exiting, this has served as a wake-up call.

“I think COVID has forced a lot of people to reassess what matters in life,” says Jason Cagle, head of Commercial Industry Specialty and Advisory at Truist Commercial. “About three-quarters of our privately held business clients are owned by baby boomers [who] are now engaging in transition planning conversations, including those who didn’t want to think about it before because their business is their passion.” He adds that a similar number of these clients are also admitting they are not ready for transition and have done little-to-no planning.

A detailed transition plan is a blueprint for success during one of the most hectic times in a business owner’s life. After helping hundreds of private businesses navigate transitions over the past two years (many of them unexpected), we’re sharing a few top insights with you.

1. Start planning 5 to 10 years in advance

It may seem obvious that the best time to plan is before you need to sell. What many owners don’t realize is that, for a smooth transition, planning should take place at least five years in advance and, ideally, a decade beforehand.

During this time, not only can you outline a succession plan, but you can also maximize and protect personal/family wealth and prepare your leadership and employees to be successful on their own. Planning ahead also means you can conduct due diligence in terms of regulatory compliance, for example, and build business value, all of which can increase your eventual sale price.Disclosure 2

Keep in mind that, as with business planning, transition planning will include a combination of short-term and long-term goals that can help ensure you’ll realize the full value of your hard work and maintain financial security after you retire.

2. Build your transition team starting today

In the 2020 report, the authors write, “[Preparation] is key to success, and transition requires careful collaboration and planning between company leaders and their trusted advisors.”Disclosure 1

Business transition is not the time to go it alone or to bring in a whole new group of strangers and hope for the best. Your financial advisors (and others who have worked with you since the beginning) have a good understanding of you and your business and can help you decide what’s right for you.

Your transition team should include people you’ve worked with before, such as lawyers, financial planners and advisors, insurance and risk advisors, and other critical members of your business team. But it should also include people who can help you understand the ins and outs of things integral to the transition, like commercial real estate, private wealth, tax implications of transitions, and more. The sooner you begin building your transition planning team, the better you can inform these people of your goals—and the better they can help you make the most of your final deal.

“Our deal team once worked with a business owner who—after consulting with his team—managed to earn a significant premium to an inbound offer they had received by hiring us to run a more formal sale process,” says Cagle.

3. Make sure your intended successors are interested

If the pandemic has taught us anything, it’s that a Plan A is not enough. As some business owners began to have discussions with their intended successors—usually their children—many have realized the next generation has other career plans.

Now is a good time to engage in deeper discussions with family, management, and other potential leaders of your post-transition business, so you can begin to outline a realistic succession plan. However, even if your family is currently on board as successors, be sure to have a Plan B. The 2020 report on transition planning noted, “The likelihood of a family company staying in the family is less than 50% with each succeeding generation.”Disclosure 1

According to “The 25 best practices of multi-generational families,” a report from Truist Wealth’s Center for Family Legacy, the best-prepared families think through future life events and wealth transitions to determine whether they are indeed prepared.Disclosure 3

“Our goal is to help our families navigate those conversations and really be in a position to help the next generation receive the wealth, so that we’re doing it not just out of an emergency to deal with a tax law or an emerging issue, but that we’re really thinking thoughtfully about that transition,” says Emily Haenselman, the Center’s director of family education.

4. Make a plan for personal wealth—before you sell

What if you went from having $50 million invested in your business to having $50 million in your bank account? Having a sudden influx of capital is a challenge many business owners face after selling their companies.

A significant aspect of a successful transition is wealth planning and management. Shifting from a largely illiquid asset—your business—to a completely liquid portfolio is a powerful mindset shift.

“In an internal survey of business owners who had transitioned, the number one regret was that they didn’t spend enough time on their personal wealth transition planning,” says Lee McCrary, head of Truist Wealth’s Strategic Client Group.

Your transition team can help you navigate the financial transition in your personal life so you can enjoy retirement goals, continue to build your legacy, and avoid letting your newfound funds languish in an account where they’re not working as hard as they can for you.


of business owners who were "totally prepared" for their business transition were "extremely satisfied" with the results.

Source: "Preparing for Major Business Transition," National Center for the Middle Market, 2020.

Ready to update your transition plan?

To learn more from Truist experts about the importance of building a solid transition plan, check out our Purple Papersm: “Imagine tomorrow. Build it today.”