LUTZ BUSINESS INSIGHTS
Overcoming Obstacles in Business Transition Planning
BILL KENEDY, CONSULTING AND M&A SHAREHOLDER
CERTIFIED EXIT PLANNING ADVISOR (CEPA)
Business owners probably think of retirement as a time to let go of all business stresses and to finally begin relaxing. Surprise—according to a recent study, more than 70% of former owners regret selling their companies less than a year after the sale. What causes so many to regret their decision? The culprit seems to be the lack of preparation on the part of the business owner.
Preparing your exit plan is similar to building a car. There are basic pieces you need for a car to work such as tires, an engine, doors, and a steering wheel. The same is true for preparing a transition plan. Each piece of the process needs to be in place for maximum performance. The preparation phase generally takes 12 to 36 months to develop.
There are many tasks that need to be completed during this critical phase, including determining what the ultimate exit option will be. Many options are available to the owner including a sale to an outside 3rd party (majority or minority), a sale to certain key employees, Employee Stock Ownership Plan (ESOP), or transitioning the business to a family member.
The first challenge in business transition planning for an owner is deciding the right time to exit or transition their business. It takes time to reach this difficult decision, but where delays are often seen is after the decision has already been made. There are many factors that cause a business owner to not begin the process even though they are confident they want to exit or transition. There are three common hurdles.
1. Business owners are not sure how to start the process.
Understanding where to begin, for business owners, is challenging due to the complexities of a business transition plan. To help alleviate confusion, involving a Certified Exit Planning Advisor (CEPA) is essential from early on in the process. Since transition plans require an advisory team of individuals with expertise in valuation, financial and estate planning, accounting, legal and wealth management, a CEPA is necessary as they will oversee the advisory team and act as a liaison between the advisory team and the business owner. With the appropriate team in place, a business owner can now begin their transition plan.
2. Business owners have a personal fear of letting go.
Despite the fact that business owners know it is time to sell their business, it is often hard for them to let go and begin the process. They are often concerned about the future of their employees and what will happen once new ownership is in place. At the same time it is also hard for owners to tell their employees that they are selling the company. Most business owners have owned their company for quite some time and might have even been the ones to start it. Moving forward from this position is very challenging but they must keep in mind the reasons that brought them to the decision to transition. Whether it be to pursue retirement or to follow another interest, they must be careful not to be clouded by the emotional struggles that come with letting go.
3. Business owners are too busy with daily business operations.
It is a common misconception that the business transition planning process will add additional work to the business owners’ already busy schedule. This misunderstanding often delays business owners from starting the process. In reality, the goals of the CEPA and advisory team are to help decrease the business owners’ workload by encouraging them to delegate their responsibilities to management and employees so that they have more time to work on their business instead of in their business. This helps grow the company and build value which prepares it for sale or succession.
Just because a business owner knows they are ready to transition doesn’t mean they begin the process instantly. The issues mentioned above can be enough to cause the owner to sit on his or her decision and stall the process. Having a thorough understanding of the first key steps in the transition planning process can help relieve procrastination. There will always be the fear of letting go for any owner who has worked hard over countless years building and growing a company. However, staying focused on the reasons they want to transition and the benefits it can bring to them professionally and personally will help relieve the worries and hesitations.
ABOUT THE AUTHOR
BILL KENEDY + LUTZ CONSULTING AND M&A SHAREHOLDER
Bill Kenedy is a Lutz Consulting and M&A Shareholder at Lutz. He specializes in business valuation, litigation support, and merger and acquisition advisory services.
AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
- American Institute of Certified Public Accountants, Member
- Nebraska Society of Certified Public Accountants, Member
- Certified Public Accountant
- Accredited in Business Valuation
- Certified in Financial Forensic
- Certified Exit Planning Advisor
- BSBA in Accounting, St. John’s University, Collegeville, MN
- Construction Financial Management Association, Past Treasurer, Board Member
- A Time to Heal (non-profit focused on cancer patients), Board Member
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