The Ideal Business Transition

Kathy Richardson-Mauro

There are millions of baby boomer business owners who have to transition their business to others in order to ensure business continuity and provide financial liquidity to fund the rest of their lives.  Owners sometimes ask us what the ideal transition is as if it’s a “one size fits all” proposition.  The “ideal” transition, in our opinion, is the one that most closely matches the transitioning owners’ goals, both financial and non-financial, and vision.  Here are five things owners should consider when they think about their ideal transition:

1. Desired level of involvement and timeline – Owners need to determine how involved they want to be in the business during the transition.  Some owners want to walk away completely while others want to stay much longer.  We encourage owners to find and groom a successor so the business is not dependent on them and many owners want to taper down their involvement over time as they determine what they will do with their extra time after the transition.
   
2. Legacy – It’s important to some owners to have the name and “tradition” of the business continue after they are gone.
   
3. Business continuity – There are lots of employees and their families dependent on the success and continued operation of your business.  Most owners want to sell to a buyer that will keep the employees on the payroll and the business at its current location.
   
4. Key employees/successors – Some owners have loyal managers and possible successors who have spent years or even decades of their lives working for the same business.  Many transitioning owners want to be sure these team members are offered ownership or at least “taken care of” by the new owner(s).
   
5. Wealth gap or how much money is needed – Owners have to “do the math” and figure out how much money they need for the rest of their lives and where that money will come from.  The business value may or may not be high enough to net them enough money, after taxes and fees. It will be critical for owners to understand how different transitions can be structured to avoid or at least minimize the taxes.  Some internal transitions may be even more tax efficient than sales to external buyers.

Getting the right amount of money from the transition is important but as you can tell, it’s not the only thing that owners should consider.  Most owners have spent the majority of their lives, time and money building their companies and they don’t want the business to go to “just anyone.”  They want their businesses to be owned and run by the “right” owner so they can achieve all of their goals and their ideal business transition.

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