Business Transition - A Complex Maze

By Tom Bixby, President & CEO, LEVEL Management Partners
Published April 7, 2016

Level Management Partners’ core service offerings are Value Growth Planning and Exit Planning (with Value Growth Planning). In this article series, we’ll explain the substantial impact pre-transition growth can have on exit value and how planning well in advance enables the most valuable gains.

Business Transition Options

The most common options for business owners seeking to transition out of their business are:

  • Transfer to partners or employees
  • Transfer to family
  • Sale to a third party

Less common options include sale to Employee Stock Ownership Plans (ESOP) and “going public” through an IPO. Choosing the best option can be very difficult as each option has its own pros and cons. You should seek help from an experienced exit advisor to avoid costly missteps.

Whichever option you choose, you can benefit greatly by planning the transition carefully. For the purposes of this article series, we will focus on the option of selling your business to a third party.

Key Sources of Complexity

The business transition process is very complex, and it can feel like you are finding your way through a maze. It can get very disorienting right from the start, as there are so many decisions to be made and poor decisions may haunt you well past the sale of your company.

The key sources of that complexity include:

  • Seeing beyond the transition – Knowing what lies in store for you after you leave your business, and ensuring you have the financial resources you need.
  • Thinking like a buyer – Your company is your baby, and beauty is in the eye of the beholder. You must anticipate how buyers will view your company and make it attractive to them. This can require some objectivity.
  • Key Employees – Your key employees are valuable to buyers, so you need to keep them motivated and provide incentive for them to stay to create profit for the new owners.
  • Taxes – Our tax code is crazy. You need expert help if you want to minimize the tax impact of your transition.

In the next three articles in the series, we will dive into each of the four areas of complexity. In each article, LEVEL Expert Network™ members will share stories of remarkable success and tragic failure.

Navigating the Maze

When you set out on the path to business transition and set foot within the maze, you will immediately face critical decisions. Many areas of the maze may be so dimly lit you may not even see alternate paths are available to you.

The key difference between success and failure always comes down to proper planning supported by skilled advisors. Having the right advisors helping you plan your transition is like viewing the maze from the sky. You’ll be able to see the dead ends without having to run into them on the ground, resulting in backtracking and lost time and money.

Jack Sluiter, a professional aviator for over 15 years, is now a highly regarded Business Broker with Transworld Business Advisors and a LEVEL Expert Network™ member. In his article “Business Basics: Landing on Purpose”, Jack emphasized the importance of quality transition planning.

“Consider your business as a high-risk venture with high stakes. Hopefully, you've planned for a successful landing, well before you taxied onto the runway. But it's surprising how many business owners have no idea how they plan to land this thing. What does a successful exit plan look like? For way too many business owners, an exit looks more like an ejection seat rather than a smooth touchdown at your desired destination.”

Timing Your Transition

When you begin to plan for your business transition, you will discover a host of changes you can make to position yourself for your best exit outcome. Each and every one of those changes will take time to complete. In many cases, you will not have complete control over how long it takes to make the change.

Your individual circumstances will determine the pace at which those changes can be tackled. You and your company may be able to handle multiple changes at the same time, or you might need to look at them individually. One thing is certain. The less time you have, the fewer options are available to prepare for a better exit outcome.

The next article in the series, “Beyond your Business Transition”, will dive into the first key to transition complexity, seeing beyond the transition.

View Part 2 - Beyond Your Business Transition

Fully develop your post-exit opportunities with a holistic exit strategy and plan incorporating LEVEL's Growth Vision and Value Architecture solutions.

© LEVEL Management Partners, Inc. All rights reserved.