The Business Transition Planning Process: Maximizing the Value of the Business
Business transition planning is usually thought of as a standalone event, but to be effective at transitioning a business, it requires an ongoing process. Creating a master plan and structuring all goals, tasks, and objectives around this single strategy will ensure a successful transition. The plan can be broken down into three equally weighted categories:
- Maximize the value of the business
- Ensure the owner is personally and financially prepared
- Ensure the owner has planned for the third act of their life
Think of these categories as a three-legged stool. If you spend all your time devoted to maximizing the value of the business and ignore the other two categories, your stool will fall over. Each of these “legs” must be equal in length or value.
Part one of a three-part blog series will dive into the first category: how to maximize the value of your business.
One of the first steps in maximizing the value of the business is changing the mindset of the management style. Most business owners fall under the “Lifestyle” management design, where the business is built to support their personal lifestyle and family. As long as the business continues to meet their lifestyle and family needs, they are satisfied with keeping everything the same. Lifestyle managers will argue this promotes family stability and allows them to focus on their life, health, and ultimately what makes them happy. While these are definitely benefits, changing this mindset to a “Value Creation” management style will ensure owners are ready for unplanned emergency situations while protecting management and company continuity, ultimately providing better cash flow for the company. A value creation management style promotes family stability and allows owners to focus on their own life as well.
After an evaluation has been done on the company, the next action item is de-risking the company. This can be as simple as adopting a written contingency plan to document how core business function will be performed if key personnel are absent. De-risking should focus on numerous value factors related to personal motivation, business operations, industry and market conditions, and financial/economic conditions. There are multiple rounds of de-risking in different target areas.
Driving the Direction
After de-risking, focus moves to governance and team building. Having the owner focus their work energy on the business, not in the business. Building a core management team to effectively run and manage the business is essential for the owner to be able to step away from the company and everything continue to run smoothly.
Focusing on the business requires analyzing current efficiency and system improvements and using this data to drive a growth strategy. With an idea of current performance and a future growth strategy in place, you can focus on creating the business culture that will help drive the focus and direction of the company.
Remember, business transition planning is an entire process which takes place over several months, or even years. It is not a one-time event. A business transition plan is essentially a business strategy, and creating a master plan that focuses on each category of the business owner’s life is the key. A team approach will help focus on enterprise value and de-risk the company, creating peace of mind and ultimately driving positive outcomes for everyone.
Read part two of the Business Transition Planning Process: Preparing Personal Finances. Learn more about Anders Business Transition Planning, or contact an Anders advisor to discuss how to develop your succession plan.