How a Goals-Oriented Approach to Succession Planning Can Be an Advantage

  • Preparing for transition
  • 5/23/2022
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Key insights

  • Make decisions based on your individual goals, not emotion.
  • Lean on professionals with experience in tax, valuation, due diligence, and succession planning.
  • Make sure you know how these trade policies could affect your organization.

This article originally appeared in the Boston Business Journal, July 16, 2021. It was updated on May 24, 2022.

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Succession planning can be a deeply emotional endeavor. Whether you chose, trained, or never even met the person who will take over your business, handing over the keys is bound to elicit strong feelings.

When preparing for the seamless transition of a business, place emotions on the back burner and pave the way for both your short- and long-term goals to take center stage. The priority for some is to hand the business down to a relative or key employee. For others it may be to sell to the highest bidder. Some might want a fast sale so they can enjoy retirement as soon as possible. And then there are those whose priority is to secure a legacy in the community. Goals are as individual as the individuals who set them.

Regardless of motivation, leaving a business to new proprietorship requires open communication and transparency among all involved principals, no matter if the company’s future lies in the hands of family members or nonrelatives.

Find the right fit

At times, a business owner must embark on a soul-searching mission to determine if the future leaders of the business are already in-house, or if they need to come from outside. Just because a person has been around the business a long time, or has an applicable skill set, it doesn’t necessarily make them a good fit to take the reins. This is the time when owners looking to transition must make some honest and tough choices, which may also lead to a few difficult conversations. Ultimately, these choices must be made in the best interest of the company and its value.

Plan for taxes

Understanding the tax ramifications associated with change of ownership and strategizing how best to leverage taxes while the business is in transition are paramount to succession planning. Professional legal and accounting assistance can guide owners toward a financially prudent structure for the transfer.

Know your value

Knowing the value of your business is a key ingredient to the succession planning mix. A full business valuation is essential, as it will compare your company against industry peers and provide a snapshot of the broad economy’s impact on your operation. Should a family member be in line for succession, a thorough valuation will make certain the business is not overvalued; if that is the case, the next generation may be saddled with debt that could ultimately lead to the downfall of the business.

A financial ratio analysis can benchmark your business against others and gauge your financial strength. Strong working capital and current assets that can keep ahead of current liabilities are goals to strive for. To help prepare for this evaluation, you will need:

  • Comprehensive monthly financials — Accurate profit and loss reports and balance sheets.
  • Customer concentration — If your company does more than 20% of its business with one client, this can be considered a risk to a prospective buyer. A spread-out customer base is an advantage.
  • Cash flow quality — Cash flow that recurs weekly or monthly is worth more than a business that is constantly seeking to retain new customers.

An industry consultant can provide categorical risk scores to help you identify changes that could enhance the worth of your business. Increasing its value prior to sale will be an advantage to the continued growth and strength of the company in its new hands.

Conduct due diligence

Conduct the necessary due diligence to make sure all accounting, legal, human resources, and information technology elements are in the proper shape for transition. Rely on professionals to help you navigate this complicated process.

Create your succession plan

Designing a succession plan that meets your specific values and goals requires thoroughness, transparency, effort and yes, time. Decisions made ahead of the transition will have long-lasting impact on the business after you are no longer involved. Having a close connection to a team of professional advisors with the following capabilities can alleviate much of this burden:

  • Business transfer strategies
  • Comprehensive succession planning
  • Financial planning
  • Insurance and risk management
  • Business valuation
  • Sell-side due diligence
  • M&A advisory
  • Investment management
  • Strategic tax planning
  • Estate planning

How we can help

Your company is often your most valuable asset, and you want to transfer it to the right successor while enhancing the value you receive. Our team of professional owner transition advisors works alongside you to understand your specific business needs and goals. We’re here to help seamlessly guide you through every step of the succession process

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