The reason why an entrepreneur starts a business is as individual as the person. However, once the business has begun, it tends to fall into one of four stages: startup, growth, maturity and renewal or decline. Throughout all these stages the owner makes choices that affect the value of their business.
To build and maintain value in a business requires intention at all levels of operation. An owner, and their leadership team, make choices that affect everything from culture to strategy and operations to finance. Value comes from everyone being on the same page and working towards commonly agreed upon goals. The bulk of an owner’s personal wealth is contained within their business making the ability to liquidate the asset at some point in time, absolutely critical.
For most business owners, the eventual sale or transition from their business is a distant thought during the startup phase and perhaps even into the growth stage. However, there is a case to be made for using transition planning – which is part of good business planning – as a strategic approach to building and growing a business.
For an owner who has the bulk of their wealth held within their business, transferable value becomes the return on investment at time of sale. It is therefore important to build and plan for the best return on investment possible.
During startup and early-stage growth, thoughts of an eventual sale of the business can seem like a lifetime away, and in fact it may be. However, dedicating attention to value and building a business that will result in a successful financial outcome for the owner is critical for a life after business that meets the owner’s expectations.
There are three main mindsets owners fall into when it comes to transition planning: exploring, pivoting and triggering. A business owner’s mindset depends, in part, on their timeline, end goals and financial need.
Exploring owners tend to be taking the first steps to understanding the concept and components of building transferable value and what transition planning looks like for them. Likely this owner is early in their business’s life and beginning to explore the options for transitioning from their business. They may not be interested in transitioning from their business anytime soon but are interested in learning more about the process and how to set themselves up to be successful at some time in the future.
Pivoting owners tend to be further along in their entrepreneurial journey and are ready to invest time and attention in an intentional way to optimize their business’s value and work towards being transition ready. This owner is ready to pivot to a role that requires they spend more time working “on the business” rather than “in the business”. A pivoting owner may even have a specific timeline in mind for their eventual exit and so needs to dedicate intentional energy to set themself and their business up for the successful transition outcome.
Triggering owners tend to be in the later stage of their business ownership journey and they find themself wanting to exit their business sooner rather than later. Quite often an owner can be triggered into action because of circumstance: health issues, loss of passion, changes in life goals and any number of reasons that the owner experiences, both personal and professional. In this case building value may play a smaller role for the owner and transition options or decision support is more important.
No matter the stage of the business, value acceleration and transition planning are intentional and part of a strategic plan. Statistically, more than 60% of owners rely on the proceeds from the sale of their business to fund their life, yet it is estimated 70-80% of businesses will fail to transition to a new owner. It is critical business owners plan to successfully transition their business at the highest value possible. Whether exploring, pivoting or triggering, transition planning is for every owner at every stage of their business’s life. Please connect with us if you are a business owner and want to start being strategic about growing transferable value in your business and planning for an eventual transition.