Business transitions are inevitable yet often unexpected, so they shouldn’t be left to chance. Proper planning can streamline the process and set business owners (and their families) up for success.
Most owners expect to run their company until they are ready to retire, but the reality is that a “trigger event” can happen at any moment. These events can include death, divorce, illness, business disruption, market consolidation, market timing opportunities, the decision to retire sooner than originally anticipated, and more.
Because trigger events are unpredictable, they can initiate a transition sooner than anticipated, catching business owners off guard. In fact, in our experience, almost half of all businesses transitioned when there was no stated intention of doing so.
“If you thought you were busy running the business, once that trigger event happens, your days become a lot busier,” says Russell Sanders, managing director of Truist’s Business Transition Advisory Group. “Everything becomes rushed, and you don’t really have time to think about the long term.”
You can’t always know when a transition will happen, but there are some tips that can make business transition planning more intentional and successful.
The ideal time to begin planning your exit is when you start your business, but very few business owners actually do that. If you haven’t already started planning, why not start today?
You read a book front to back because you enjoy the suspense of wondering how it will end. But that’s not how you should run a business,” says Sanders. “What tangible and intangible benefits do you get out of the business? What would you like a transition to look like? What will you do next if you are not working for the business? Think about these questions first, not last.”
At the very least, begin planning a few years ahead of when you know you want to exit. “It’s a big job to create a transition plan; you can’t just run a calculation and quickly figure out all of the answers,” says Sanders. “You’ve got to really think about the bigger things in life, and that is difficult for many business owners. Give yourself time to do it right.”
It’s an evolution. Not the end.
Remember that business transitions are not the end of life as you know it, but merely an evolution to the next phase of your life. How well you plan for this shift will impact how satisfied you’ll be with the outcome.
Sanders says that while maximizing sales proceeds is important, what you do with the proceeds (and yourself) after the transition is just as important. This phase of the business transition planning process often is overlooked. “As a result,” he says, “many business owners experience a lack of direction or a sense of loss after they exit the business.”
Effective business transition planning is more than just a tactical decision that’s made right before a sale. Rather, it accounts for decisions that need to be made before the event, during the event, and after the event.
Preparation is key, and that includes having a personal wealth and/or family legacy plan that can help you evaluate strategic alternatives for your business and ensure the best possible outcome.
Preparing for transition
As a business owner, you have options for how you transition away from your business—and who you leave in charge. Learn more about how business transition planning lets you leave your company in the best hands by reading our infographic, “Preparation puts transitions to work.”