Transitioning out of a business requires as much planning as forming and growing a business. These three tips will help you prepare to make a timely and successful business transition.
Three Tips for a Successful Business Transition
It’s not easy to form a business, it’s not easy to grow a business, and it’s certainly not easy to leave a business. Whether you’ve decided to exit your business soon or are considering a later move, here are three tips to help ensure that you make a successful business transition.
Tip #1: Form a solid transition team
It takes a team to build a business, and it takes a team to leave one. You may want to hire an independent advisor to help you decide whether and when to sell, and you’ll definitely want to involve a number of other financial, legal, and other experts to help guide the process, including:
- Tax and accounting professionals to help you value your business, compile documents to present to potential buyers, and structure the sale for tax optimization
- A lawyer to draft the transition agreement and any contracts, leases, or other documents involved in the sale
- A business appraiser to help you secure the best price for the business and its various components
- A business or investment broker to invite businesses to submit bids
Tip #2: Explore multiple transition options
Transitioning out of a business typically means selling it to an outside party, but you may want to explore other options as well.
One alternative is to give some or all of the business away, often to family members or employees. You’ll make less money than in a traditional business sale, but that may be less important than ensuring the continuing legacy of your business.
Another alternative to selling to an outside party is to create an employee stock ownership program, or ESOP, which can have a favorable tax advantage overselling. Given the right scenario, this can create goodwill with the employees and provide them with a strong incentive to continue building the business.
A third option is to walk away from your day-to-day responsibilities and bring in a professional management team. This method is often used to buy time if you want out but the market or other factors make an immediate sale difficult.
Tip #3: Create a transition plan
In theory, every business owner, regardless of the age of the business or the owner, should have a transition plan. In reality, you may have been too busy building your business to worry about forming an exit plan.
But now that you’re at least mulling over the possibility of leaving your business, it’s essential to start your exit planning process. Oftentimes, tax planning strategies can conflict with maximizing value in your company, so you need to plan early to get the best results.
In general, your transition plan should include:
- Your transition goals, including both personal and financial goals
- Your transition priorities, including what changes you’re open to (is it acceptable for a buyer to change the business name, close a location, merge with another business, etc.)
- Your preferred buyers, including whether you’re open to purchase by competitors, employees, or family members
- Your preferred timing
Get the support you need
BST offers a broad portfolio of accounting and auditing, tax, consulting, and wealth management services, as well as valuation, forensic accounting, and litigation support. As you consider transitioning out of your business, we are here to serve as your trusted advisors, providing continuous consulting to support every step of your journey.