Planning to Transition Your Business - Are You Prepared?
The Question I am asked most often: What Do I Need to do to Prepare my Business for a Successful Transition?
Inevitably, your business will face a time where it needs to be transitioned for continued success. Whether that is preparing the next generation of owners, attracting new owners, or preparing for an absentee ownership business model. In many cases, Business Owners are not thinking of this transition far enough in advance to maximize the probability of success of the transition that they are planning. The question I am asked with a high level of frequency is: What should I do to prepare my business for transition in the future?
Regardless of what type of transition you are seeking for your business: business sale, business transfer to family members, ESOP, new leadership, next generation ownership, absentee ownership. There are three elements of success that every business benefits from in the long term and transitionary periods. They are simply stated, but difficult to achieve without planning and implementation.
First, the business needs to be cash flow positive. A business that cannot cover its operations from its cash flow is one that no one will value highly. Whatever the transition, new leadership and/or ownership will have a plan for the business and in order to implement that plan the business will most likely require investment. Positive cash flows enable investment decisions and borrowing capability.
Second, the business should have a successful track record of steady growth in revenues and profits over a period of time. Consistent and steady improvement over 5 years in each of these areas validates that you have a solid business model and are able to differentiate your product, service or customer experience relative to others in the market. The growth does not need to be market leading or exponential, just consistent and steady.
Third, and most importantly. Your business cannot be entirely dependent on you for success. This is the difficult area, if you as the Owner, or Leader, are essential to the successful operation of the business, any transition in the future will be difficult. Your business should be set up to operate effectively, even in your absence. In many cases, business owners will possess the key relationships with customers or suppliers, or possess the essential technical and process knowledge for the business, or are the only ones that possess the skills capable of performing the work for their clients.
If you are thinking about a business transition in the near future, please feel free to download my 5 Keys to Successfully Transition a Business guide by clicking on the link.
Interested to learn more, let’s talk. Click the link below and schedule some time with me.