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Value Creation Blog

4 Things To Think About When Starting A Business Transition Process

Posted by Josh Patrick

Exit PlanningMany advisors think the Holy Grail for business owners is the day they sell their business.  These advisors think a business owners goal is to build a business and then sell out for “big bucks”.  My experience is that business owners build businesses to run and enjoy and when the right time comes sell them, hopefully to someone who will be a good steward in future years.

I’ve written a great deal about the role of the passive business owner.  I believe that a passive business owner has the best options for transitioning their business when they want, to whom they want, in the manner they want than any other business owner.  This owner has done the ground work for creating a great business that outsiders would want to own and insiders can run successfully.

The first question an owner has to answer when it comes time to sell their business is what’s next for them.  By this, I mean what’s next on your agenda in life.  Running a business, even if you’ve become a passive owner takes a great deal of your time, energy and attention.  A passive owner has the option of spending some of their time on other projects and hopefully, that’s exactly what they’ve done.  The owners who have started to ease themselves out of their business will understand what’s next in their life and be ready to move to that stage.

The second question is who will you sell your business to.  A successful passive owner will have the option to sell their business to an outside party or their managers.  In some instances the passive owner will also have the option of passing the business to children who are working in the business.  The decision about who the next owner of the business will be is an important one to all of the stakeholders and one that should be taken very carefully.

Third, what is your timing for making this transition?  I suggest that you attempt to make this transition while you’re still in good health.  If your health deteriorates, your options are reduced for your business transition.  Even a great passive business owner will find that buyers drive a harder bargain if the owners health has dramatically deteriorated.  I do expect that passive owners will transition their business later in life, but hopefully not so late that their good people leave for greener pastures.

Understand, selling a business is liking seeing your children leave.  In some instances selling a business is even harder than having your children leave home.  You often have spent more time and effort nurturing your business than you did with your children.  When you finally sell your business you will have likely spent thirty or more years working and running your business.  Saying goodbye is a very difficult process.

At the end of the day, selling a business for a passive business owner is more about the psychological aspects of your life than the financial ones.  Passive owners will have done a great job to put their business in a position to maximize the financial value of the business.  Doing the same for the psychological value is more difficult and has more dangers.

Josh Patrick

Get your complementary Exit Planning Assessment to assess the 18 key areas a buyer would look at in your business.  You will have a call with no charge as well as a report that outlines a projected value of your business, the gap you could fill and strong and weak parts of your business. This assessment and report just might help you stay out of the need to do an earnout when you sell your business.  Click on the button below to start the Exit Planning Assessment process.

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Securities and Investment Advisory Services offered through NFP Securities, Inc. (NFPSI), Member FINRA/SIPC. Stage 2 Planning Partners and NFPSI are not affiliated.

This article is published for residents of the United States only.  Registered Representatives and Investment Adviser Representatives of NFP Securities, Inc. may only conduct business with residents of the states and jurisdictions in which they are properly registered.  Therefore, a response to a request for information may be delayed.  Not all of the products and services referenced on this site are available in every state and through every representative or advisor listed.

Topics: exit planning, enterprise value, business exit planning, passive ownership

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