You've worked hard to build your business and put it in a place where it's successful. But suppose you want your business to outlast you and continue delivering value long after you've left the stage. In that case, you need to take the time to build a sound business transition plan.
Your business transition is one of the most critical stages in your financial career and your business life. Some business owners make the mistake of believing they can simply put their company on the market, sign the dotted line, and walk away with a substantial return.
A business transition is much more complex than that, and many business owners want more than just a big payday. Some maintain an emotional investment in their business and want to see their company succeed even after they're gone. Others wish to safeguard the employees' jobs and livelihoods that contributed to the company's success over the years. Still, others feel that leaving a good plan in place is the right way to exit the company.
Of course, money is still a central part of creating a solid business transition plan. Small businesses are a considerable investment, and many business owners have a substantial amount of cash tied up in their business they need to access for the next stage of their life.
They might need that money to fund their retirement, pay for their children's college, give some money to their grandchildren, or complete large purchases to improve their communities or family lives. A good business transition plan ensures they can secure a maximum return on their investment to fund those expenses.
There are numerous ways to transfer ownership of your business and finding the right one will depend on your goals and circumstances. Three of the most common include:
Never jump into your business transition without a plan. Good business transition planning can help you prepare the ground for a smooth transfer, ensure the stability of your company, and promote its long-term growth and success even after you've left.
The key steps to a sound small business transition plan include:
Before you initiate the transition process, you must decide what you want your transition to look like. Determine whether you wish to transfer the company to a relative, sell to one or several employees, sell to a new business owner entirely, or other available options that might suit your needs. Understanding the final objective of your business succession will help guide and shape your planning efforts.
New owners want to make sure your company is a worthwhile investment, so it's important you gather the data, information, and documents needed to demonstrate financial and organizational stability and long-term growth potential. You need to provide evidence that your existing cash flows are secure and resilient while also detailing future forecasts to show that your business has the foundation needed to flourish in the coming months and years.
Small business owners often have a disproportionate number of roles and responsibilities, which will need to be transferred to other team members. A single individual is unlikely to take on all existing ownership responsibilities, so it is vital to identify who will assume what responsibilities and prepare them to move into those roles as soon as possible. Stakeholders must also understand where they fit in the broader transition planning efforts and what tasks they must undertake during the transition period.
Small businesses often revolve around the personality, skill set, and leadership style of the founder (or long-time owner), making it challenging to transition from that individual to new ownership. During the transition period, the business owner should migrate key front-facing responsibilities to other stakeholders to make their eventual exit less jarring for both customers and employees. That means taking more of a backseat or advisory role and equipping future leaders with the skills and knowledge they need to succeed.
Business transitions can be unsettling for everyone involved, especially junior staff, who won't usually be close to high-level transition conversations. It is essential to keep all organization members abreast of the latest news and developments, so they understand the current and future state of the business. The succession team should also ensure employees know where they fit in the larger transition to help clarify and ease possible anxieties.
Business transitions are complicated processes with numerous moving parts. That also means there are several possible mistakes the outgoing small business owner could make that might compromise the transition and damage the value they stand to gain.
Some of the possible transition pitfalls to avoid include:
Crafting a small business transition plan is not easy; it can take significant time and resource investment to ensure the future of your business is secure. Not everyone has the tools or expertise to do so successfully.
Cathay Bank provides business owners with the financial services and products they need to facilitate a successful transition and ensure the long-term viability of their company. Check out our blog hub for more financial insights, and reach out to our team to start a conversation.
This article does not constitute legal, accounting, or other professional advice. Although the information contained herein is intended to be accurate, Cathay Bank does not assume liability for loss or damage due to reliance on such information.