Why Transition Planning is Crucial for Business Owners

I’m often surprised at the responses I receive when I mention transition planning to entrepreneurs and business owners.  They typically say it isn’t a consideration as they plan to own and operate their company for a long time before they might sell or bring in a new chief executive.  Unfortunately, circumstances can change--sometimes suddenly or even catastrophically, and without a strategy in place, the business may suffer, and in the worst case, cease to exist altogether.

Let’s face it:  business owners work hard to build their companies and often times, it is their single greatest financial asset.  As such, it must be protected to achieve maximum value at time of sale, or provide stability and security for the next generation of ownership.

Transition planning (also known as succession planning) is vital because it helps increase the likelihood that a business will continue to operate effectively in the event the owner sells, retires, or passes away unexpectedly.  It provides for a logical and methodical transition, in the event it becomes desirable or necessary.

A transition plan helps address key issues such as:

  • Protecting and controlling the future of the business
  • Equitable sharing of the financial rewards of the company with family, etc.
  • Reducing estate taxes
  • Distributing ownership/stock among family members who participate in the business
  • Retaining key employees

Over the years, I’ve worked with clients who established transition plans and were able to leave their companies in a strong position, having successfully meet their goals and expectations.  On the other hand, there were clients who avoided such planning, only to find themselves wishing they been more diligent and farsighted.  Sadly, I’ve also experienced a tragic case in which a business owner passed away unexpectedly, leaving the company to his wife.  She had had no involvement in the enterprise and was suddenly faced with being the chief executive in a business she knew little about; the company floundered and eventually folded.

Is transition planning right for you?  Some of the questions to begin asking yourself are:

  • Who will take over/operate your business?  Does that individual have the background, experience and passion to run the business effectively?
  • Will there be sufficient resources to hire someone with the background and expertise to run the company, if needed?
  • Are there partners involved?  What if something happens to one of them or if they desire to leave the business?
  • Are family members involved in the company?  What are their expectations?  How does one avoid family conflict that could ruin a business?

What value could you bring to your business through transition planning?  Participation in a VirtualBoard can be a solid first step toward developing a transition plan, as well as helping address the ownership and management aspects of the business. Please let me know if I can help.

Alan