As a business owner, you are unique. Your situation, circumstances, challenges, goals, and objectives are all specific to you and your business. That’s why when it’s time to transfer the ownership of your business to someone else, the transition planning process should take all of this into account.
An effective transition planning process will require you to create your written plan or roadmap showing where you are today and how you can achieve the life you want tomorrow. And, just as building your business has taken years, you want to make sure that you have enough time to plan for your future and the future of your business.
Typically, we tell owners they should allow 3 to 5 years for this process. Here’s why…
Top 3 Reasons to Start Exit Planning Years in Advance:
- You need time to determine the best business transfer option for you.
The big question: Will you transfer your business internally to family members, employees, or key managers or will you try to sell externally to an outside buyer?
To make this decision, you need time to understand the pro and cons and determine what you are likely to net from each potential transfer method. You need to carefully and equally assess the non-financial characteristics of each method, as well. The decisions you make will affect your employees, your legacy, your family, and ultimately, your future.
The question of whether you should sell internally or externally cannot be answered superficially. The suitability of any transfer option can only be determined by establishing your financial and non-financial goals and examining your entire situation from a holistic comprehensive viewpoint. This takes time, planning, and most likely, the assistance of professionals trained in the transition planning process.
- You need to make sure you’re prepared from a business and personal perspective.
You want to make sure you are preparing yourself for the life you have envisioned. Whether you want to remain active with your company in some capacity or wish to leave completely in a few years, you need to begin creating the life you want now.
Personal: Many owners think that life without their businesses will be great. They can’t wait—no more worries, no payroll, no accounts receivable, and no customers. The truth is, even though these are things most owners would be glad to be rid of, many owners’ identities are tied up in their businesses. If owners don’t give themselves the time to work through this process and prepare themselves for the transition, it could lead to a feeling of emptiness and loss.
Business: What kind of shape is your business in? Are you financially healthy and profitable? Have your books been reviewed by a CPA? There are many drivers of business value beyond profits: strong management, market share, reputation, quality products and services, and documented processes and procedures are just a few of the things that buyers will review when they consider whether to buy your business and how much they are willing to pay. Sellers pay top dollar for high quality, and it can take years to prepare a business for sale.
- You need time to build and execute your Business Ownership Transition Plan.
Exit planning is something that should be constantly revisited during the life of your company. Proper preparation can help to lessen any issues that could arise during a business transition.
Developing a plan takes only a few months, but execution can take much longer. Most owners need at least 3 to 5 years, once their plan is in place, to successfully transfer their business, especially if it is to an internal buyer. Five years goes by very quickly. Owners who develop a Business Ownership Transition Plan will have a far better outcome than those who don’t.
As we discuss often, a transition plan requires ample time to adequately develop and accomplish. There is no substitute for planning in advance. It is crucial in order to ensure the owner’s desired goals and objectives, both financial and non-financial, can be achieved.