Topics and Events

Planning an Exit Requires a Relationship, Not a Transaction Mindset

For business owners who are thinking about exiting their business in the near (or not so near) future, there are many things to consider to assure the business transition happens in a smooth manner.  Owners are wise to seek the counsel of advisors in this complex and delicate area.  While discussing an exit with a professional advisor, owners are well served in asking how the advisor that they are speaking with perceives their role, as well as, how that advisor is compensated.  This newsletter makes the argument that in order for this process to go smoothly, owners should seek out the counsel of ‘relationship-based’ advisors in favor of ‘transaction-based’ advisors to create and begin implementing a multi-year exit planning process. Understanding an Advisor’s Role in an Owner’s Life Advisors enter a business owner’s world mostly on a reactive basis, usually because there is a need for assistance with an outstanding issue.  For most owners the relationship with their accountant is the most consistent and often the most trusting in the realm of financial issues and that is simply because state and federal governments require, at a minimum, that businesses – and their owners – file their taxes each year.  This is, again, a reactive (albeit very important) approach to the process of finding an advisor. However, some business owners buck this trend and actually take a proactive approach to working with their advisors, including a commitment to planning for the future. These owners recognize the importance of ‘staying one step ahead’ and they seek out the best advisors for their short-term and long-term needs. The Relationship-Based Advisor versus the...

How Much of the Future is in Your [Exit] Planning?

Small businesses – those with a few million in revenue to approximately $50 million in revenue – are often run by their founders.  And because these founders were generally experts in their fields before they were tasked with running an enterprise they tend to incorporate less planning in their businesses.  Rather, these owners often set the strategic directions of their businesses in an ad hoc manner, incorporating various techniques to drive their businesses while mostly setting the direction of the business with their instincts.  The purpose of this newsletter is to emphasize the importance of seeing into the future with your planning – particularly with your exit planning. The Planning Process, Generally Speaking Generally speaking, the process of planning for a business’ future is all about setting the direction for the enterprise with the best knowledge and inputs available today.  The planning process is not only about forecasting the future, it is also about gaining focus and consensus amongst the team that assists the owner.  Done properly and consistently, the planning process for a business provides direction, communication, alignment of resources, and a plan for executing on the initiatives set forth in the plan. The Six and Twelve Month Plans While the planning process is about looking into the future, it is a matter of how far into the future any owner can see that is the greatest challenge.  While the visibility of a business’ future is often difficult to see beyond the immediate 24 to 36 months, it is important to look beyond these more obvious planning dates when planning an exit.  For example, an owner may be...

How Does My Readiness for an Exit Impact My Options?

The path that an owner follows in leading their organization through a successful transition to another owner is a personal process.  Owners will not exit / stop working in their businesses until they are truly ready to do so and when an owner understands what they are trying to achieve as well as their readiness to achieve it, they are making great progress towards a successful exit. This newsletter is written to assist owners with interpreting their goals and readiness for an exit and then understanding which exit options may be most appropriate for their situation. An Owner’s Readiness for an Exit Drives the Best Options All business exit planning begins and ends with what an owner wants most combined with how well prepared they are to execute.  For example, an owner may want his key person to take over the business in the future.  Well if there is a risk that the business will not survive in the hands of the key employee, then that owner will certainly want to first know how dependent they are on the business’ future success and income, i.e. that owners’ financial readiness for an exit.  In this case, if the owner has sufficient assets and streams of income outside of the business, he or she may not need to worry about the future success of the business (at least from a personal, financial perspective).  More often, however, owners are not ‘ready’ for this transition because they are, in fact, dependent upon the future success of the business to fund their lifestyle. By contrast, an owner who is ready to leave the business...

Family Business Exits and Transfers Pitfalls to Avoid – Five (5) Additional Issues

In this series of newsletters on family business transitions, we address five (5) additional issues, which we call pitfalls, that should be considered when building a plan for your exit and the transfer of the business to family members.  Transferring a family business from one generation to the next is a delicate process.  Focusing on these five (5) additional areas should increase the success of your overall business transfer and provide you with a more successful exit. I. Trying to give everyone an equal share Where multiple children (or other related family members) are involved, it is often the case the parents want to treat the children equally.  While this is a nice idea in theory, dividing your business equally may not be in the best interest of your business. Remember that the management of a business and ownership of that same business are separate issues and should be considered and handled in their own, unique ways. For example, it may be more fair for the successor(s) you have chosen to run the business to have a larger share of business ownership than family members not active in the business. Or it may be best to transfer both management and ownership to your chosen successor and make other financial arrangements to benefit your other children. Many exiting owners try to focus on the notion of being ‘fair, but not equal’ amongst the children, knowing that trying to keep everything equal may actually prove to be more unfair in the end. II. Not adequately preparing the transfer for a potential audit  For preparing the transfer of ownership to the next generation,...

Family Business Exits and Transfers – Pitfalls to Avoid

Amongst the millions of privately-held businesses in the United States, a large percentage are ‘family’ businesses.  This means that there is more than one generation of a family working in the business.  As you, the exiting owner, begin to consider how you and the company will live without the business as it transitions to your children, there are a few key areas where you should focus your attention.  This newsletter lists five (5) of the pitfalls that you should avoid when planning your family business succession. It is helpful to begin with a few statistics illustrating how often family businesses are trapped within these pitfalls.  Namely, less than one-third of family-owned businesses survive the transition from the first generation of ownership to the second – and only 13 percent of family businesses remain in the family over 60 years. Why such challenging longevity statistics? It could be in part to the added challenges that come with running a family owned business or, quite possibly, the many hurdles that can come with succession of that business.  Given the importance of the business to the families involved – including your family members, the employees, the management team and your community, it is worthwhile to review this list of pitfalls and incorporate these ideas and plans for greater success in your overall exit planning.  The five (5) pitfalls are as follows: I. Transferring when the parents are not financially ready Being a parent, you want the best for your children. Some business-owner parents who have children that are ready, willing and able to take over their business sometimes put their children’s needs above...

Four (4) ‘More’ Signs That You May be Ready to Plan for Your Business Transition, Part II

Successful business owners are unique in their abilities to manage many aspects of their companies, all towards a successful, profitable outcome.  In the day-to-day battles and pursuits to advance your company, it is unlikely that you stop to think about its future transition.  Despite the fact that you may not be ‘pro-actively’ thinking about the future ownership of your business and how you will participate in the transition of the company to the next owners, here are a few signs that may indicate that you are getting closer to planning for your future departure and succession to a new owner. 1)  I’d Like to Be Ready to Sell if the Opportunity Presents Itself If you are a successful business owner, then it is likely that others have approached you in the past about buying your business.  Alternatively, you may not have had the conversations with these buyers, but you know that they are out there and would cherish the opportunity to own what you have created and get access to the people and assets you have accumulated as well as the cash flow that you are churning each year.  If you are now thinking that those buyers will inevitably start knocking on your door and that you want to be prepared to have a meaningful conversation with them, then that is a sign that you should begin the exit planning process.  The bottom line is that there will be an excess number of Baby Boomer Business Owners looking for buyers for their businesses in the upcoming years.  Therefore, in most cases, the buyers and investors who acquire companies are going...

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