“There are few universal truths in business life. This is one. You will leave your business.
John H. Brown, CEO, Business Enterprise Institute Inc.
In 20 years, I am yet to encounter an owner with a clear fit-for-purpose transition strategy. No well defined end-game is evident. When I quantify the income the owners need to retire, smarter transition planning becomes a priority.
A successful transition requires careful planning. There are multiple transition alternatives we help you explore. Refer to the 8 alternatives we have explained on our Transitions Page.
Add to this, a mismatch in negotiating skills between owner and buyer. Many buyers do this stuff for a living. Owners don’t. We often step in between owner and buyer to negotiate a win-win, not a win-lose.
By now you will appreciate that transitioning a business is not simple. It is not as simple as selling your house. If you get it wrong there can be dire financial consequences and unnecessary stress for you and your shareholders.
So, our process for creating a smart transition strategy?
First up, we work with you (and shareholders) on clarifying your transition objectives – including departure date, income required after departure and to whom you want to sell. We also select other professional service providers required to transition your business effectively and efficiently – legal and accounting professionals who excel at transitions, not necessarily your company accountant or lawyer. (During the transition we hold these professionals to account on your behalf).
We then value your business using our Defensible Business Valuation model and explore ways to increase that value in advance of your departure date. For owners not pressed for time, we wheel back to the beginning of our change program as outlined on our Home Page – Financials, then People followed by Strategy, Execution and Cashflow.
In fact, we recently turned around a financially-distressed business in regional NSW – book value $2m – and sold it to a European group for $11.5m. Add in a great retirement for the owners.
We might settle on say 3 transition alternatives from the list of 8 below.
We then brainstorm the consequences of each of the 3 alternatives, against the objectives we agreed earlier with you and your shareholders.
Consequences will include tax liabilities and associated risks.
This decision making process ensures a smart transition.
The 8 transition alternatives:
- Trade Sale
- Family Transfer
- Management Buyout
- Hiring Professional Management
- Employee Share Ownership
- Initial Public Offering
Careful transition planning will maximise the proceeds of your sale, minimise taxes, hence maximise your after-tax proceeds and minimise the stress involved in the business transition process.