It’s often been said that running your own business is a labor of love. It has to be. Why else would you work those long hours, take those risks and forgo a conventional career that might offer more security, even a better paycheck?
After years of hard work and dedication, you’ll inevitably get to the point where you need to transition your business. Though it can be challenging to let the business go, it should be viewed as a mark of success. After all, it means that you’ve grown your business to the point where it’s ready to be handed off and grow independently. This is a huge accomplishment!
Whether you’re ready to step down and move on to another venture or want to make sure a plan is in place should anything happen to you, it’s crucial to have a transitioning plan for your business in place. Today, we’re going to look at five crucial steps to take before transitioning your business to ensure your work lives on.
1. Where are you and what are your reasons?
There are many reasons for deciding to transition your business, but to make a sound decision about what to do with your business, you should think in terms of goals. What did you hope to achieve when you started out on your entrepreneurial journey? Maybe it was to open three restaurants in your city or generate a certain amount of revenue each year or grow the value of your business to a certain amount of dollars.
Just because you achieved these goals doesn’t mean you should transition your business. However, the idea behind thinking in terms of goals is that they give an objective mile-marker for where you are in relation to your business. This can be a guide to help you decide whether you’re ready to move on.
There are also the non-business-related goals to consider. Perhaps you are ready to retire or feel that in order to grow the business, you must step aside. At some point, many entrepreneurs decide there is something else they want to achieve or to accomplish with their life. Maybe you have a bucket list of travel destinations or a hobby you wish to dedicate more time to?
2. Know what your business is worth
Before you begin the transitioning process, it’s important to have concrete data on what your business is worth. This might be harder than it sounds. To get an accurate assessment, approach your business like you would any other investment. Evaluate the potential risks, the areas for growth, cash flow and other aspects to arrive at an objective evaluation.
Many small business owners will have a large amount of their personal net worth tied up with their business. They also have a lot of emotional capital invested as well! Because of this, it might be wise to hire an outside consultant to give a more objective valuation.
3. How will you do it?
Did you develop a piece of technology a tech giant wants to purchase from you? Have you been grooming your son or daughter to take over for you? When it comes to transitioning your business, there are four main ways to do it:
- Keep it in the family: Otherwise known as “giving your business away,” this is a popular option for people who wish to pass down their business to their children, other family members or even gift it to employees who will continue their legacy.
- Employee buy-out: Some entrepreneurs don’t have family to transition the business to, or their family simply isn’t interested in the business. A popular option in this situation is to sell the business to the employees through an Employee Stock Ownership Program (ESOP) or other process. This has the advantage of keeping the business in familiar hands and increasing employee engagement.
- Sell: In some cases, a buyer from a larger business will offer to buy your business outright. This happens in many industries, and it can be a huge cash boon for the business owner. However, as many small business owners know, it’s not all about money. When you sell out to another entity, the legacy you built may be at risk. The culture of your business may change and some jobs you created could be at risk.
- Step away: When you want to lessen your responsibilities but not step away entirely, you can opt to bring in a professional management team to take care of the day-to-day responsibilities while you still take in the economic benefits.
4. Consider working with a transition team
A lot of financial and legal details go into transitioning a business, not to mention emotions! Because of this, you’ll want to work with experts who will ensure you cross all the t’s, dot all the i’s and can help you get the most out of the transition. Depending on the nature of your transition and the size of your business, you may want to work with the following professionals:
- Certified Financial Planner (CFP)
- Certified Public Accountant (CPA)
- Business Lawyer
- Business Broker
- Business Consultant
5. Make the decision
This is the easiest and most difficult step to take. If you decide, after considering your initial goals with the business and where you are personally and in a business sense, that you’re ready to transition your business, set a date. A general time frame will be between nine and 12 months. Decide on a date and do what you’ve been doing for years: Work to make that goal come true.
Continue reading for tips on how to run a successful family business.
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