Many family-business owners aren’t sufficiently prepared to transfer their businesses. There are several reasons why business transition planning is critical for business owners who want to protect the future value of their enterprise. One element of this preparation is an effective business transfer plan.
Convenience Store News’ recent article, “How to Create a Transferable Family Business,” outlines several concepts that will motivate you to take the necessary actions to ensure your business will be transferable for the value you expect.
Get the Big Picture. You need to keep the business moving in today’s business environment. Define your vision for both the company and yourself, so you’ll have a core for meeting threats head-on. Without it, you may be trapped in your business or not get the value you anticipate when you exit. Be certain that you and your business are prepared for the future. Protect owner value and increase the likelihood of a successful transition to a new owner.
Start the Planning Process ASAP. Commit to an assessment and review planning process, and review your current strategic corporate and personal planning to reveal threats and identify opportunities. There are four steps:
- Examine your personal and business goals and objectives.
- Ascertain your level of financial and mental readiness.
- Consider transfer options.
- Review your financial, estate planning, and investment plan to be sure it’s aligned with your transition plan and family wealth plan.
Decide on Valuation Strategies. Determine how much money you’ll need to cash out. Understanding the value of your business and how it fits into your financial and estate planning is vitally important. Work with a business broker and find out what your business is really worth.
Look at Industry Trends. Evaluate the trends in your market to see what future owners may value in a company they purchase. Investigate the competitive position and comparable values in the industry and gather industry intelligence to help with your preparation for making decisions when the opportunities arise.
Calibrate Your Company’s Owner Dependence. The value you get for your business may be based upon the level of control you want to maintain. The less your company depends on you, the higher the value of the company.
Find and Keep Executive Talent. Talented managers can be a real value driver for your company. Look at your key executives rank in terms of skill and ability to operate the business. Be certain you have the best people on staff to help the business grow and motivate them through incentive-based compensation that is in sync with the company’s goals and succession plan.
Leadership and Collaboration. Leverage the expertise of an advisor team to review and make sure all of your planning is on track to accomplish your goals. Investigate goals for the business and strategic issues, like contingency plans for unanticipated circumstances.
In addition to your estate planning attorney, consider partnering with an independent business advisor who specializes in business transition planning.
Reference: Convenience Store News (October 4, 2016) “How to Create a Transferable Family Business”