Sept. 25, 2023

This paid piece is sponsored by Eide Bailly LLP.

A version of this article first appeared on EideBailly.com.

There is a lot to think through as you take the first steps toward transitioning your family business. A good place to start is with two important questions:

• What is your vision for the company without you?
• What is your vision for you without the company?

The answers to these and other important questions come with proactive and strategic planning throughout the transition process. Remember: The most effective strategy of a succession plan is time. The more time to prepare for exit, the greater the options available to ensure success.

What are my transition goals and objectives?

Letting go can be challenging, especially after investing years of your life into building the company. In fact, the Exit Planning Institute reported that 76 percent of business owners who sold their businesses experienced profound regret within a year. By clearly defining your goals and objectives, you can ensure a smoother transition.

Examples of value-based objectives include:

• Establishing a lasting legacy.
• Attaining family harmony.
• Preserving workplace culture.
• Providing opportunities for employees.
• Minimizing tax implications.

It also is crucial to establish a timeline for your transition. Determining how long you intend to continue working in the business also will help get you, your family, your business and your employees on the same page for what comes next.

Is my business prepared to handle a change in ownership?

Developing a well-crafted continuity plan helps facilitate a seamless transition, minimizes disruptions and ensures the long-term viability of the company.

Reflect on the potential impact that an ownership structure change may have on current management and employees. For instance:

• If you are the sole owner, how will transitioning to a multi-owner structure affect the dynamics and responsibilities of the management team?
• If you plan to pass the business on to family members, do they possess the necessary skills and experience to manage the business effectively?
• Will the transition result in a loss of financial resources that could impact day-to-day operations?

Succession involves more than just finding a new leader for your business; it is an emotional change that can evoke fear, discomfort and anxiety. By addressing these questions early on, you can mitigate potential losses of employees and customers during and after the transition.

What will my finances look like post-sale?

A comprehensive wealth plan is essential to transition your wealth effectively, considering factors such as inheritance, investments and gifting. Aligning your personal wealth and estate plan with your exit strategy is crucial. Selling your business likely will result in significant changes to personal and family cash flows, as well as substantial tax implications.

Collaborating with experienced professionals such as financial and estate planning advisers can assist in developing and implementing a plan that aligns with your business planning and exit strategy.

Lessons learned in sell-side readiness

• Prior planning prevents poor performance.

Careful planning will help you avoid pitfalls such as uncovering issues at the same time as the buyer. The more time you have, the more you can influence your value and rectify issues.

• Advisers offer an invaluable and informed outsider’s perspective.

Outside advisers, be they attorneys, bankers or other professionals, are invaluable. The earlier you involve them the better. They can help quarterback the process. They’ve been through it before, and they understand the M&A world, so they can help you identify and avoid bumps in the road.

• Sell-side readiness reduces the probability of post-closing adjustments.

If you prepare properly and understand your business from the buyer’s perspective – accounting properly, knowing where the business is headed, outlining your working capital – there’s a lower likelihood of post-closing adjustments or issues that would lead to litigation down the road.

• More time is always better.

Time allows you to go beyond putting Band-Aids on things. It enables you to actually address problems, right-size accounting and more. You can increase value by fixing a problem because a buyer will pay more if they don’t have to fix it themselves.

• It’s easy to underestimate the energy, effort and emotions involved.

Avoiding deal fatigue and analysis paralysis comes down to managing emotions around the sale and being more generous when you estimate the effort involved in the selling process. Advisers can be helpful in guiding you to set realistic expectations to better understand the task ahead.

Planning for a successful transition – without losing sleep

According to the Family Business Institute, 85 percent of companies that devoted 10-plus years to succession planning were still in business 15 years later. Among those that spent two to 10 years planning, 50 percent were still in business. Only 25 percent of businesses that spent two years or less planning for transition remained in business 15 years later.

Remember, an effective transition plan is not only about securing a new leader. It’s also about preserving your emotional, financial and cultural legacy. With thoughtful preparation, you can safeguard your business, maintain family harmony and plan for what comes next.

Transitioning your family business is a significant event. Eide Bailly’s experienced professionals can help.