Building Value and Preparing for Business Transitions

In the next 10 years we will see a large percentage of businesses change hands. Research done by BDC Canada shows that 54% of entrepreneurs expect to leave their business in the next four to five years. Business owners need to evaluate their businesses now and put a plan in place to ensure the value of their business is at its highest when the opportunity arises.

Building a transition plan takes time and may include a variety of strategies, stakeholders and professionals to execute.  Working with an exit planner to build a formal process with written goals, actions and timelines will help owners build value and enhance the attractiveness of their business.

There are many options for owners on how to exit their business including: family succession, sale or transfer of control outside the family and winding down or selling assets. To prepare for a successful transition the business needs to assess the knowledge, skills, leadership and client relationships that are reliant on the current leader if transitioning the business to a new owner(s).

When the successor is known an assessment can be completed to determine the skills, strengths and areas for growth to build training and development plans for the next leader. If the successor is not known there are strategies to consider to enhance value for future management and leadership transitions.

Owners need to think about how long they are prepared to stay around after the business is sold. Expectations between the buyer and seller need to be discussed during the process. When the business can succeed without the seller on a day-to-day basis the business is more likely to succeed. An owner can plan for the transition and be in a better position for a possible sale.

Key areas owners need to think about:

  • Does your management team have the skills and experience to run the business after you leave?
  • Do you have any key staff contracts in place that would be essential from a purchaser’s standpoint?
  • How reliant is the business on you and your expertise or an any other single person?
  • How long are you prepared or willing to work during a transition period?
  • Does the business have human resource policies and employee or training manuals in place?
  • Is there an organizational chart in place with clear job titles, job descriptions performance reviews and training plans in place?

Working with an exit planner in advance of a sale (three to five years ideally) will help an owner and their team assess the areas of the business where transfer of leadership, knowledge and skills are necessary to prepare for a future sale or transition. It will also identify other areas in management and human resources that can be improved to increase the attractiveness of the business to a potential buyer.

If you have any questions about transition and exit planning or how to find a Certified Exit Planning Advisor to help you start yours, connect with us.