Business owners invest their time, energy and resources into building their business into a successful enterprise. Yet, many owners find themselves not knowing how to carry out transitioning their business while maximizing the value. According to the Exit Planning Institute, 78% of business owners do not have a formal transition team. This means that the company’s future is unknown, and continuing growth is not guaranteed.
Benefits of Business Transition
Business transition planning is an ongoing process that should be prepared for long before transitioning your business. The benefits of having a successful business transition plan are continuous. Business transition planning can help:
- Control how and when to transition your business
- Minimize the taxes to put more money in your pocket
- Place strategic options to choose from during any life event
- Maximize value during good and bad economic times
- Create peace of mind knowing your future is secure
A successful business transition plan can increase annual income and the value of the enterprise. It pushes the team to be the best-in-class business and will serve the owner as a contingency plan. Non-solicited offers do happen, so it is important to have you and your business ready to maximize value.
Transitioning the Business
When it comes time to transition the business, there are eight basic options to choose from. If there are multiple partners in the company, choosing to sell to existing partners requires a pre-determined buy-sell agreement. This option is not available to single-owner businesses. While this may restrict selling options, selling to existing partners ensures informed buyers, a controlled process and lower costs.
Selling the company to employees through an Employee Stock Ownership Plan (ESOP) is another common option. The company uses borrowed funds to acquire shares from the owner and contributes the shares to a trust on behalf of the employees. Shares are purchased with pre-tax dollars by the ESOP. While there are benefits, ESOPs can be complicated and expensive. It requires a securities registration exemption, and the company may be compelled to buy-back shares from departing employees.
Even if the owner plans to transition to family, there are many considerations, especially if multiple children are involved and not all want to own the business. Beginning to map out a transition strategy early can help make sure the owner is comfortable in retirement and can save families from disputes and potential costs from disruptions of the business in the future.
Deciding how to transition your business can be a tricky process. Anders has a team of Certified Exit Planning Advisors to help every step of the way with a personalized plan for your business.
Business Transition Planning Process
Business transition planning allows the business owner to get actively educated on the process of how to transition their business. With a multi-disciplinary team of advisors working together, discussion of your personal, financial and business goals are aligned to your family’s core values. All of your business transition planning options and opportunities will be identified and you will be guided on development and implementation of the selected business transition strategy.
The Anders Business Transition Planning Team can help ensure a smooth transition and get you ready for the next step. Learn more about our Business Transition Planning Services or contact an Anders advisor to get the process started.All Insights