The Essence of a Successful Business Transition
We have all been there: talking about an experience or a position in life with another person who can completely relate and offer great advice because they have followed a comparable path, facing similar decisions as yours.
The best parenting advice comes from mothers and fathers. Want to make a memorable meal? Follow an expert recipe from an experienced chef. Take your fitness advice from someone who successfully works on their own health and strength.
My husband and I purchased our first small business in 1994, a self-storage facility. We expanded the facilities and improved services. We knew the areas to focus on that would improve valuation for when we would choose to sell.
Over the years, we had built a second real-estate focused business and sold it to a national company who now does the same things we did locally. If your path is similar to ours and your goal is for transition, I can offer some “walked in those shoes” advice.
First, recognize that building your valuation takes years and the best multiples are paid for well-run, systematized businesses.
Second, plan your transition far in advance. Who are the likely buyers? Does it require an expert stepping into your shoes? Do you need to train that expert? How will you sell, in a lump-sum transaction or over time such as a land or business contract?
Finally, and most important, have a vision for why you are selling and what you will do after you exit. In both instances for us, it took a great deal of playing out different options of what to do with the money once we had received it. We planned for taxation, now and in the future, and how to balance our desire to effectively tax-plan while fulfilling our goal of selling. We considered income replacement, as the businesses we sold had been a reliable portion of our household revenue for decades. We appraised potential rates of return for the new investments we would make with our proceeds, finding an acceptable trade-off for the business sale. We incorporated gifting options. We evaluated estate planning implications. There is a lot to think through and to plan for when dealing with significant changes in your life that involve large sums of money.
Like taking parenting advice from someone who is themselves a parent, or paying for cooking lessons from an experienced chef, be sure to consider the real-life experience of the person you are considering taking any financial or business advice from.
With a well-defined exit strategy, you will be among those who experience the sheer joy of taking your business full cycle as you receive your just compensation, handing the baton to someone else to run the enterprise that you’d worked so hard to successfully create. Truly, it is the essence of a successful business transition.
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