An ownership transition is like a vacation… success must be planned for!
Think for a minute about all of the vacations you have taken. Whether it was a road trip over spring break, a honeymoon after your wedding or your family’s summer vacation, all of these getaways were preceded by long hours, days, and perhaps even months of planning. You probably spent a great deal of time researching various locations and resorts, pricing flights and considering the landmarks you would see. Your goal was to reach the right destination, at the right price, where everyone would benefit from rest and relaxation.
Why was all of the planning effort necessary? Because if not properly planned out, your time away could quickly go from restful to stressful.
Planning for a Successful Transition
As the owner of a privately-held business, you may be in a similar situation. And yet, it is interesting to note that many owners are willing to invest in planning a vacation, but have not planned for their long-term destination: transitioning the ownership of their business.
It’s easy to be caught up in the day-to-day operations of satisfying customer demands, addressing product quality concerns, meeting with management teams to focus on improving profitability and establishing budgets. Running the business is often what an owner thrives on. What is not easy, however, is thinking about where you, as the business owner, want to ultimately go. What is your destination?
Part of the challenge is that there are many possible destinations. Here are a few owners can consider.
Destination 1: Transitioning to the next generation. Is there an obvious succession team in the next generation of the family? If so, is the company in a financial position to transfer ownership while providing the financial security you need for retirement? Have you planned the management (or non-management) roles of the next generation? Do your successors understand their roles and responsibilities, and are they prepared to undertake the risks of ownership that are so familiar to you?
Destination 2: Finding a new owner. Maybe you plan to sell the company you built. Many owners are under the impression (wrongly so, in most instances) that post-sale investment income will replace the pre-sale compensation and benefits realized as the owner. Have you had someone take a realistic look at your company from a value perspective? Running a couple of sales scenarios will give you a picture of your post-ownership finances. Doing so gives you a good perspective on your company and what must be done to yield maximum value when you sell.
Destination 3: Empowering current management. Perhaps you have a loyal and competent management team and you would like to see the company continue to benefit the family of management and employees that have contributed to your own success. The financial challenges can be daunting if not addressed early, while you are still there to oversee the process. There are a variety of ways to accomplish these goals… but the key is to start early.
Business transitions are inevitable, but unfortunately, a successful one is not. As a business owner, your ultimate goal is to transition at the right time, and in a manner that will secure your financial future and realize your vision for the continuing success of the company in which you have invested so much financially and emotionally.
In our experience, successful transitions are not developed in one or two meetings, and there is no magic bullet. Every transition is as unique as the owner whose skills and persistence are reflected in the success of the company. The success of your transition depends on applying the same determination and persistence that you do to your business. The most critical element is that you start planning today.
Just like the annual family vacation, your ownership transition should be an opportunity to get you, as the business owner, to the right destination, at the right price, where you can enjoy a lifetime of rest and relaxation. iBi
Joe Glawe and Melissa Yoder are principals at CliftonLarsonAllen. Connect with them at [email protected] or [email protected] For more topics focused on business owners, visit claconnect.com/Manufacturing-and-Distribution-Services.aspx.