The path to building your business is like navigating a labyrinth, where every turn presents a new set of challenges and opportunities. Big decisions can loom large when you’re not sure which way to go.
When business transition and succession are concerned, it can feel like a fork in the road. As Yogi Bera once said, “When there’s a fork in the road, take it.”
But which way is best?
When it comes to business transition planning, there are many practical aspects to consider such as retirement planning, financial planning, estate planning, insurance, and legal considerations. And there are emotional aspects too!
While there’s no one roadmap, here are six critical steps to achieve business transition success regardless of which path you take.
1. Embrace Change
What does transition mean to you? It means a lot of things to us at different times. Transition is movement. Transition alludes to a process that is part of something. Fundamentally, transition is about change above all– whether a change of control, or a change of ownership. It’s a change of how you’re running or consuming yourself with your business. There are lots of reasons why you may be intimidated by exit planning. Change can feel uncomfortable. We like to deal with what we know. We like certainty. It’s hard to think about transition planning until you’re ready…your mind is open to the possibilities. Here’s a caution…don’t wait for a crisis to happen to force the process.
2. Create A Plan With Options
When everything is changing, you can’t change everything. The markets are always changing, and your life outside the business is dynamic too. Entrepreneurship is a journey, no matter what phase you’re in– launching, growing, value building, or exiting. Approach transition planning with an open hand. Create optionality. If you need to change direction, you’ll be better prepared to shift to the next option already in mind. Will you sell to a third party? Gift shares to family? Sell a minority stake of the company to management? Giving yourself more options and more possibilities is the best safeguard against disruption. The more exit options you can create, the more likely you’ll reach the outcome you desire.
3. Start When Time is On Your Side
When should you start exit value planning? Yesterday was the best time, the second best is today. And the third best time is tomorrow. There really is no reason why you shouldn’t start now. Get a business valuation. Learn what risks your business is facing and how you can solve them. It will help you run a more profitable, enjoyable business. And increase enterprise value the more transferable and attractive it is to potential buyers. Remember: you can’t do exit planning when you’re exiting!
4. Reverse Engineer Your Exit
Are you focused only on what is in front of you today? Just like in chess, if you are a couple of moves ahead, your chances of winning will dramatically increase. Your business may be more like a cruise ship than a speed boat when it comes to change. To make a big turn, it will take longer but can be done. Take the time to reverse engineer your exit. “Begin with the end in mind” to quote Stephen Covey. If you’re interested in selling to a third-party, or passing to the next generation, you need to make sure that you have a well-run business someone wants to take over.
5. Have a Transition Mindset
While the practical steps like financial and legal planning are of strategic importance, equally vital is the often-overlooked factor that plays a monumental role in your success – your mindset. Your personal mindset about business transition can impact the outcome of your entrepreneurial journey. How you perceive a future change of ownership and whether you participate in the process to facilitate that change can create a self-fulfilling prophecy of success (or decline). Having a transition mindset means you’re also considering what you will do after you leave your business. When it comes to developing your personal identity outside of work, it is good to take note of how you spend your time and who you spend it with. Create a purpose or mission that motivates you. What you’ll likely see over time is that your actions will follow…leading to higher transferability and value of your business.
6. Find Clarity
Entrepreneurs don’t build a company on their own. So why not plan your business transition and exit strategy with trusted experts in your corner. Approach the process with confidence with a BOAT (Business Owner Advisory Team). Choose advisors with business transition and mergers/acquisitions expertise. The most common benefit that transition and exit value planning brings you is clarity. Business owners feel relief by having a strategic transition process and framework to move forward.
For more insights and a comprehensive guide to business transitions, get your copy of “The Business Transition Handbook: How to Avoid Succession Pitfalls and Create Valuable Exit Options” by Laurie Barkman.
What will your transition look like? Click here to ask questions or schedule a call with Laurie Barkman.