Many family business owners have a hard time imagining their businesses running without them at the helm, but others are look forward to transferring ownership when retirement or a new venture beckons. An aspect that must be addressed is safeguarding the value of the business.
One article, “How to Create a Transferable Family Business,” highlights seven concepts to position your business for sale or transfer by planning now.
Get the Big Picture. In today’s environment, you can’t afford to stand still. While not every company must tread the cutting edge, you should be aware of economic and industry-related threats to your business. Position it for long-term success by defining your vision for both the company and yourself, giving you the foundation you need to meet threats head-on. Consider whether your actions now are preparing the business for the future, preserving owner value and increasing the chances of a transfer or sale being successful.
Start Planning ASAP. So you have a vision. Now, how do you make it a reality? Review your strategic business planning, as well as your personal planning. Consider any potential threats or opportunities. Here are four steps to consider:
- Think about your goals for the business and for yourself. Is there a certain amount of growth you’d want to see in your business? Do you have a timeframe for when you’d like to sell or transfer the company?
- Figure out how mentally and financially prepared you are to transfer the business. It’s a big shift to suddenly have that huge part of your life gone. There could be financial implications for you, too, especially if you’re reliant on your income.
- You have options when it comes to transferring the business. You could transfer internally to a family member or to shareholders or externally via an outright sale. However, you should also consider what transfer options you’d have in case you were to be incapacitated or to die unexpectedly.
- If you’ve done financial, estate or investment planning, ensure it’s aligned with a business succession plan and any wealth planning. Experienced estate planning attorneys and financial professionals can help coordinate your plans and ensure alignment of all your assets with your business succession and estate plan.
Decide on Valuation Strategies. Determine how much money you’ll need to cash out and address any liquidity issues with any equity stake in the business. Understanding the business’ value and how it fits into your financial and estate planning is vitally important. Work with a valuation professional to find out what your business is really worth, with the understanding that the way you decide to transfer the business can impact its value.
Look at Industry Trends. Look into recent trends in your industry and think about what potential buyers are looking for in businesses they purchase. Consider your competition and how your company stacks up in the industry. Gather industry intelligence so you can recognize a golden opportunity when it arises.
Calibrate Your Company’s Owner Dependence. Your business’ value may be based on its reliance on you. The less your company depends on you, the higher the value of the company. Think through ways to minimize owner dependence now to set yourself up well.
Find and Keep Executive Talent. Talented managers can be a real driver of value for your business. Look at your key executives skills and ability to operate the business. Ensure you have the best staff to facilitate growth and motivate them with incentive-based compensation, syncing compensation goals with company goals and your succession plan.
Lead, Communicate and Collaborate. You don’t want to do this without the help of independent advisors who can help you, your family and your executive talent as you go through this process. By setting goals for the business, addressing key strategic issues and planning for the unexpected, you’re more likely to have a successful transition.
Including your estate planning attorney in this process is crucial, as he or she will be able to help you with the tax implications of a sale as well as advise you on the best method of transfer. For more information on business succession planning, explore our website and contact us to schedule your consultation today!
Reference: Convenience Store News (October 4, 2016) “How to Create a Transferable Family Business”