Business ownership: Business transition

Legacy planning, liquidity events and more

Feb 07, 2023

Key takeaways

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The most effective planning can take at least three years in advance of exiting a company.

Be sure you’re paying close attention to risks like cybersecurity, underutilized or inefficient ERP and CRM systems.

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In a transition or exit, one of the largest expenses is often tax. Much planning can be done to minimize this expenditure.

Private client services

Business transition

With the business either proving successful or buoyed by promise, owners can home in on how their professional and personal objectives align, while ensuring the business proceeds according to their wishes.

An exit can take many forms, whether it’s a strategic buyer, employee purchase, a sale to a private equity firm or a transfer to a family member. Just as importantly, a business transition is a nonsequential step that can happen at any point. That simply underscores the importance of planning.

Questions and answers

Best practices for owners of growth stage businesses

People, process, and technology

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As your professional and personal goals align, the people component has two aspects: employees and family.

Best practice

From an employee standpoint, keep in mind that transaction value is related to your company’s ability to continue without you. Key employees are important, and planning for them to stay once you no longer own the company can be equally important. This could be carve-outs in the purchase agreement or maybe a specialized executive compensation arrangement. From a family perspective, this is an ideal time to make sure that any legacy planning is taken care of, and that the family is ready for life beyond your ownership of the business.

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Value in your business will also be ascribed to whether your ability to make money is in an adopted well-defined process, including the sales process.

Best practice

Being prepared will accelerate closing and get rid of the biggest enemy—transaction time. Ensure that processes are well established and documented throughout the business.

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Old or outdated technology can also provide for a price concession in the final transaction.

Best practice

Investing in technology as early as possible will help you establish processes and controls that attract potential suitors.

Tax tip

Start planning your business transition early

In a transition or exit, one of the largest expenses is often tax. Much planning can be done to minimize this expenditure, but it will often take time to implement. The best scenario is to start planning for an exit 36 months before the event to capture tax planning ideas that can help increase your after-tax cash flow.

Explore all five stages of the business owner lifecycle

How do entrepreneurs address the various lifecycle stages of business ownership?

Owning a business takes a certain confidence and grit.  All owners are different, but all face similar challenges.  Our business ownership lifecycle ebook shares insights gleaned from helping business owners face these challenges head on.