Are You Ready to Make an Ownership Transition?

Mar 22, 2021

A transition of company ownership, whether internal or external, is a complex process. Before attempting to sell a business, owners should make sure they are ready. This means determining their desired outcome, developing transition thinking, understanding options, and assembling a solid advisory team.

Determine Your Desired Outcome

For an owner to successfully transition ownership of their company, they must first understand their desired outcome. Outcome considerations include:

  • For family-owned businesses, is there a desire to keep the business in the family?
  • Does the owner want to retire, stay involved in the business, or do something else entirely?
  • What is the desired timing for a transition?
  • How prepared is the management team or the successor generation to take over the business?
  • What is the merger and acquisition (“M&A”) environment in the industry?
  • How much does the owner expect to make?

The desired outcomes will drive the preparation and structure of a transition and transaction.

Develop Transition Thinking

Transition thinking involves two main ideas:

  • The role of an owner – Owners should focus on maximizing the value of the business through optimizing cash flow, minimizing risk, and putting the best possible leaders in place to run the business. The owner should discontinue any activities that do not maximize the value of the business.
  • Understand what creates value – Business owners should understand how investors value their business and what actions they can take to increase the value. Investors are interested in the strength and sustainability of the company’s future cash flows. Investors will also adjust the amount they are willing to pay based on the risks a business faces, such as expiring customer contracts or high turnover in key positions.

Understand Transaction Options

There are many options available to owners and we will cover this topic in a future blog post.

Assemble a Solid Advisory Team

Owners must have an experienced team of advisors to support them through the transition and transaction. Steve Whitteberry of Invictus M&A says, “Owners should invest the time to find qualified advisors including M&A attorneys, CPAs with transaction experience, and an experienced investment banker. A strong team is a key to a successful transaction.” Members of this team include:

Succession/Transition Advisor – This advisor supports the business owner by developing a transition plan, which includes the identification of opportunities to maximize the business’ value, and then helps facilitate execution of the plan.

M & A Attorney – Transactions can have a significant amount of legal complexity, so engage with an attorney that specializes in M&A activity in your industry and can support your team throughout the process.

Certified Public Accountant (CPA) – Many owners do not consider the impact of taxes on the proceeds from a transaction until it is too late. Have a CPA with M&A experience get involved early in the process.

Wealth Advisor – The wealth advisor works with the owner to develop a plan for managing the proceeds of the sale to achieve ownership goals.

Estate Attorney – In conjunction with the wealth advisor and CPA, an estate attorney can help an owner and their family setup a structure that minimizes taxes and protects wealth for the current and future generations. (We will cover estate planning in-depth in a future article.)

Investment Banker – The investment banker will help prepare offering documents, bring the company to market, vet potential buyers, and guide the company through the sale process.

Valuation Advisor – Many transactions fall apart due to misalignment in the purchase price. The valuation advisor provides owners with a comprehensive valuation of their company based on the company’s performance, asset valuation, and/or market comparisons. (We will cover business valuation methods in next week’s article.)

Key Takeaways

  • Determine the desired outcome of a transition.
  • Cultivate a mindset of transition thinking from an owner’s point of view; focus on maximizing the value of the business.
  • Owners should understand the value of their business and the ways to maximize it; increased cash flow and minimized risks.
  • Owners should have an experienced team of advisors to assist in the transition.

Additional Reading

Exit Planning Series

WH and Adamy Valuation began a series called “Tactical Tuesdays” in 2020 in response to the impact of the COVID-19 pandemic on our clients and business partners. The goal of “Tactical Tuesdays” was to provide up-to-date information that would allow leaders to make tactical decisions to run their business. As COVID (hopefully) winds down, the Tactical Tuesdays focus is shifting to address longer-term issues. Over the next several weeks, DWH and Adamy will be publishing a series of blog posts around exit planning for business owners.


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