death and taxes. Well, if you own a business, you can add a third. You will
transition ownership of your business at some point. That is a fact of life.
The key factor that determines whether the transition is successful or not is
having an exit strategy or a transition plan in place.
According to the new Price Waterhouse Coopers (PwC) study on family-owned
businesses, 25% of all family-owned businesses will go through a transition of
ownership during the next five years.
Why is this happening now? According to the Pew Research Center, 10,000 baby
boomers reach retirement age every day. These baby boomers own 66% of the
businesses in the U.S. - nearly 4 million companies in all. This means more than
one million businesses will change ownership in the next five years. So, you are
not alone out there, and you need to plan for the transition now.
According to the PwC study, the transition in business ownership will look
• 52% will pass the business onto the next generation to own and run
24% will pass the business to the next generation to own, but not run
12% will sell to another company
• 4% will sell to a private equity
How can you prepare for a transition? Successfully transitioning
the ownership of your business requires planning, and that takes time. Don’t
wait until you are too sick or old to run the business or until the business
begins to go downhill. The ideal time to transition a business is when it is
thriving, growing, and poised for success.
Transition to family members
You wouldn’t think of handing your son or daughter the keys to an expensive
new car without ever having taught them to drive. Don’t expect success if you
turn over your successful business to family members without preparing them to
assume ownership and having a plan in place.
• You should train and coach your successors. Let them actually work in
the business. More important, let them fail so they can learn what does not
• When you retire, you should leave the company. Do not sit around
the office second- guessing every decision. Retire, and truly allow the next
generation to assume ownership. If you trained them properly, they’ll know what
to do, and they may do it in a new way that is even better than the way you did
• Set realistic goals and expectations. Reward accomplishments and
applaud results. Stay tuned into new technology. You do not have to master it,
but understand how it works and how it can help improve business operations or
• Outline clear financial terms. You may elect to sell the company
to your family or even to employees. Just ensure everyone is onboard and
understands exactly how the financial transition will be done. You should secure
professional assistance to prepare for the financial transition, determine
company values, etc.
Some of the most successful companies in America have been owned by families
for generations. You can ensure a successful transition to family members. Plan
the transition, and prepare the next generation to assume command.
Selling to another company
Twelve percent of family businesses will sell to another company. This still
requires preparation. A few simple, yet very important steps include:
• Clean up your financials. If necessary, hire a CFO or accounting firm to
• Create a complete management team. If you are missing key
personnel, hire them.
• Have a clear strategic focus. Communicate it
clearly to your team and customers.
• If a high percentage of your sales
are tied to just a few customers, diversify your customer base. Add new services
• Resolve any pending legal or environmental issues.
Know your personal and financial goals--what you want to accomplish through
the sale of your company. You will probably only get one shot at this, so get it
• Identify and select a qualified investment banker who understands
your goals and has the experience to help you achieve them.
Selling to a private equity group
Four percent of current business owners will sell to a private equity group.
In general, this is the same as preparing for a sale to another company. The big
difference is that the ultimate goal of any private equity group is to invest in
your company, improve its performance, and ultimately sell the new company for a
If anything, preparation is even more important in this situation, because
the private equity group often wants to depend upon you and your management team
to continue managing the day-to-day operations.
They will provide cash, management skills and potential customers or partners
to increase profitability. The better prepared you can be for the sale, the
easier it will be to manage the company after the sale.
Death, taxes and transitions--for business owners, these are the certainties
in life. The difference between those who excel after transition, and those who
flounder or fail, is preparation. If you are thinking about a transition, start
planning now. It will happen, whether or not you’re ready for it.
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