Four Steps to a Successful Business Transition Plan

business transition plan
Picture of Scott Hohman, CFP®, AIF®

Scott Hohman, CFP®, AIF®

If you own a business, it is essential to have a business transition plan in place. Regardless of your age, life throws us curveballs so it’s important that you have a strategy in place that allows your business to continue to thrive even if something occurs that takes you – and your vast experience and knowledge – out of the equation. Ideally, you’ll develop a long-term ownership strategy to rely on so that your small or family-owned business has a way forward long into the future.

As with many things in life, the sooner you begin to plan, the more options you’ll have. Choosing between possible paths becomes easier when you can define and clarify what is truly important to you. Below, we’ll discuss a four-step approach to determining what matters most to you, and what it means for your own business transition planning.

Step 1: Begin With the ‘What’ and the ‘Why’

To get started with your business transition planning, you must determine your transition goals and bring into focus the motivations behind them. In this part of the process, ask yourself this question: “What do I hope to accomplish by selling, and why?”

Your first reaction may be that this question has a straightforward answer. Maybe you’re ready to retire, maybe you’re suffering extreme burn-out from building a business from the ground up, or maybe you have a health issue that precludes you from continuing to work. When you think about it, these are all possible reasons for leaving a job, but they don’t necessarily get to the heart of why you want your business to continue on without you. Answering that aspect of the question will begin to point you in the right direction as far as what you want to preserve within your business and how to get there.

A second initial planning question to ask yourself is: “What is not important to me in the transition?” Think about things like whether you want the name to remain the same or whether you have a stake in the business staying local. When you identify what is not important, you’ll also likely feel more clarity around what is. Gaining a better understanding of both means you can build a transition plan that doesn’t just meet your goal result of a sale, but also satisfies the underlying motivations behind it.


SEE ALSO: Selling a Business: Strategies to Achieve Philanthropic Goals


Step 2: Identify Your ‘Who’

Once you know why you want to sell at some point in the near or distant future, it’s time to identify what type of buyer will best meet your business succession goals. If you have adult children or a management team with the experience and knowledge to run the business, determine whether they have the financial means to buy it. If not, you’ll probably need to plan for a longer period of time before your succession plan can be put into action.

If you’re working with a shorter time frame for sale, you may have more limited options. This is another good reason to begin your transition planning early, well before you’re actually ready to sell. This allows you to drastically expand the potential pool of buyers, and even have your chosen buyers in a place where they’re prepared and able to take over.

If you don’t have a specific person in mind, don’t fret. Determining your preferred type of buyer (family, management, employee, financial buyer, strategic competitor, etc.) can be useful, too.

Step 3: Choose Your ‘When’

Now, there will be times when you have a sale timeline in mind simply due to life circumstances. Many business owners find, though, that they have the opportunity to align their transition timing in such a way as to maximize their returns. Look at things like valuation trends or market indicators that could impact your business. If the outlook is fairly bleak for the next year, for example, you could think about benchmarks you’d like the business to hit before the sale, and then extend your transition time until you feel like it’s a more optimal time. If you don’t have the luxury of waiting indefinitely to exit your day-to-day responsibilities, consider hiring more staff to take over your duties, then initiate the actual sale when you believe it can result in a higher purchase price.


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Step 4: Get Clear on the ‘How’

All of this initial work in your plan is important, but it will be meaningless if you don’t utilize all of the “what, why, who, and when” you learned in the steps above when it comes time for the technical implementation of your plan. So, you know your goals around the sale, your motivations behind it, your preferred type of buyer, and your ideal timeline. This is the point at which you can truly begin planning for the actual transition to take place.

This is not a process that will happen in a vacuum – you will need a team of advisors to help you hone your strategy and direct the implementation. This team may include lawyers, bankers, accountants, and tax professionals, to name a few. They will help you tackle the issues you’ve discovered in previous steps. For instance, if you have a management team eager to buy but lacking in finances, your advisory team will help with financial modeling, time frames, and more to help overcome this obstacle. The team will also ensure that your transition plan is clearly documented; this includes both the mechanics of the transition and your goals and objectives related to the sale.

Final Thoughts on Successful Business Transition Planning

As you can probably tell based on the above steps, business transition planning is a holistic endeavor. It should take into account all of your goals – business, personal, and financial – and rely on the technical guidance of an advisory team that keeps all those goals in mind throughout strategic planning and implementation. When you take the time to thoughtfully work through each of the four steps discussed here, you have the best chance of achieving your goals and maximizing your returns.

The views expressed represent the opinion of Resolute Wealth Advisor, Inc. (RWA). The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness. While RWA believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and the RWA’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.

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