Will Your Business Exit Be a Transaction or a Transition?

Will your business exit be a transaction or a transition?

Many business owners oversimplify their view of what their exit will involve. They just assume that there will be some sort of transaction at some point in the future. However, having such a passive mindset is a mistake. While individual situations differ, no one is immune to the passage of time. There will be an exit from your business – whether you’ve actively planned for it or not. The question is whether there will be a light at the end of this tunnel – or a train coming the other way.

The reason so many owners aren’t more proactive in planning for their exits is because it is an uncomfortable, hard issue to process. It is complex on a financial level, since most owners have the majority of their wealth tied up in their business. But it is even more complex on an emotional level because it involves a significant change in the owner’s identity and what they do each day.

The owner’s emotional readiness for this change is an often-overlooked aspect of the exit process. Having interviewed many owners after the fact, I can tell you that there is no single best way to approach this issue. Just like every owner puts his or her personal touch on how they build the business, you must do some soul searching and carve your own path for what life will be like after you leave your business.

The multi-dimensional complexity of all of these issues demands that you take the time to really think and plan ahead. The most important step is to identify all of your motives and be really clear on what matters most to you. Certainly money is a motivating factor for every owner. However, it is rarely the only motive and often it is not even the most important. Other factors like employees, the ongoing role in the business, family members, community, and legacy are often major considerations.

This is why we advise our clients to view the exit from their business less as a transaction, and more as a transition. A transition mindset involves a far more thoughtful process that takes into account your motives, alternatives, and issues. It also involves spending more time with your advisors to assess and evaluate your options, which leads to more meaningful outcomes for everyone involved.

At some point, there will be a transaction for every business and every owner, whether it involves a sale to a third party, an ESOP, a transfer to family members, or some other arrangement. The key to a successful exit is the transition planning you do in advance, so you can be clear-minded about the process when the time is right.

 

Mario Vicari, Kreischer Miller

Mario O. Vicari is a director with Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email.   

 

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