The Questions Every Business Owner Must Address

John, so far we’ve explained the need for identifying, evaluating and selecting your transition objectives, including introducing our concept of “Activement”®. With the reasons for your exit and your transition objectives identified, you are ready to move on with the transition analysis process by addressing three basic questions every owner must face: When? To Whom? and for How Much?

WHEN?

Time is either your greatest ally or your worst enemy when it comes to transitioning your business!

Wise use of your available time significantly increases the likelihood of a successful outcome. Putting off planning or the actions required to achieve a successful transition, limits one from being able to positively influence the outcome. In other words, business transition is not a “last minute” exercise.

It is never too early to start planning for a business exit. Even though owners may have thought about when they ideally would like to exit their business, being ready requires the successful implementation of a clear plan. The age-old expression always remains true to form, in that “the best time to exit from the business is when you don’t need to.”

According to your answers, you intend to transfer your ownership in 2 or 3 years. It is extremely important that the planning for your succession should be done now, in order to use the available time to prepare the business and to fully ready yourself for the transfer of ownership. Keep in mind, that with a limited timeframe before the exit, you may fall short of achieving many of your own goals and objectives.

TO WHOM?

In the questionnaire, you indicated the desire for a planned liquidation of the business.

However, your initial thought process may have focused on a single exit option without the benefit of analyzing all of the possible alternative choices, or understanding which exit option can best attain your overall objectives. We hope that you will keep an open mind and consider various alternatives or strategies with the ultimate goal of fulfilling the personal objectives of other owners similar to you.

Liquidating the business may provide a relatively easy method for generating the value you require at exit. In many business situations, liquidation is the elected option, or is the only other possible option available. In certain industries, an orderly disposition of the assets is an acceptable method for exiting the business.

Prior to considering this option, it would be important to understand the market value of your business assets, including those assets not listed on the company’s balance sheet. In particular there may be some Goodwill that isn’t initially obvious to you, but might have value to others. Web sites, trademarks, supplier contracts, customer lists are all examples of intangible assets that may get overlooked. Regardless of the transition option you are currently considering, you should consult with an advisor to explore all other possibilities. and then determine the best alternative to address your personal circumstances.

All too frequently, an Owner selects individuals as potential transfer nominees. However, they may not all be at the same stage in planning for their own career development, or they may fear the unknown without having been actively involved with leadership. Retaining and developing key team members during the transition process, is a key factor in business sustainability. The team’s individual career objectives must be addressed in the planning stage, to ensure both their commitment to the succession process, and to the continued growth and development of the business remains following your exit.

Finally, note that the needs of all owners (current and prospective) must be taken into account in designing the succession or exit plan. Each of their individual agendas can influence and/or complicate a seemingly straightforward transaction or transfer, and as a result there can be a greater probability that the transfer may not proceed smoothly, or that it might even collapse over time. This must be a consideration when deciding To Whom you will transition ownership.

FOR HOW MUCH?

Why are you in your business? When all is said and done, moving beyond just working to make a living, as many business owners are doing, you are in business to build wealth – and to extract some of that wealth while operating the business and then again eventually upon your exit. It is always important to diversify your holdings and work towards reducing your financial dependency on the future transaction of the business.

Business Wealth Transfer Options:

• While operating the business
• Upon exit
• A combination of the above

A key step in developing your individual transition plan is to identify all the specific financial objectives you wish to achieve by selling or transferring ownership of your company and understanding how they fit in with your wealth transfer circumstances. None of the personal and financial objectives were identified by your responses to this question.

If you have not yet done so, you should consider completing a “financial needs analysis.” This analysis provides you with a comparison between the amount of proceeds you will eventually require from the sale or business transfer to fund your desired future lifestyle, and the projected value gap that might exist based on your current assets and sources of income, including the present value of your business.

Any “value gap” identified, must be addressed during the implementation phase of transition, and should be addressed well before exiting, in order to put the odds in your favor that you will have enough money to fund your future lifestyle objectives.