Transition Planning Revisited

Improving the Business and Positioning it for Sale

An exit plan must be fluid and flexible. This article provides readers a summary of the standard processes followed by the author and potential pitfalls.

You say succession, I say exit; you say leadership change, I say transition—at the end of the day does it really matter? Change is coming and time waits for no one. Perhaps the following Mark Twain quote sums up the challenges like no other, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” A big mistake made is to set up a plan then file it; one of the most important things of many is to make sure that whatever the plan or “thing” is called, your client knows that it is rather fluid and flexible—while there are some standard processes, some of the specific tasks may evolve over time as you work the plan together with your client. This plan will be the guide to helping your client achieve their goals and objectives. The process of transitioning the business purposely does not preclude the owner from improving the business and positioning it better for a sale or other options.

Your clients may have been through some of these pieces, in part, as you have worked with them through other projects in addition to your own thoughts and perspective. At some point in time if you work on transition planning projects, you will formally go through these steps, targeting the specific tasks needed to meet the owners’ goals and objectives. Some of the tasks may change a bit based on the discussion as well as discussions with transition team members and various groups of investors or companies. In addition, some of these steps and processes will run simultaneously.

There are several choices involving possible beneficiaries, buyers, outside financing, seller financing, and of course terms of the sale or transfer. The goal is to make sure you understand all the options and assist in developing an approach and strategy that makes sense for your client, given their personal goals.

The following is an outline I have used to help guide the process:

1. Establish Goals and Objectives
   • Align personal and business goals, including timing.
   • Assess readiness, given goals and timing.
   • Understand alternative transition options (e.g., family, employee, third party).
   • Understand transition process given different options (gift/sale, financing).
   • Include family and other “trusted” stakeholders in process.
   • Establish key advisory team (attorney, CPA, financial advisor, valuation professional, others to fill in gaps in experience/skills).
2. Valuation/Appraisal
   • Business, across alternative transition options.
   • Real estate, including market rent if needed.
3. Develop Strategy
   • Integrate goals/objectives with valuation/appraisal results.
   • Prioritize exit options.
   • Establish milestones and specific process/actions for exit options chosen.
   • Develop contingency plan.
   • Develop post transition strategy.
4. Strategy Implementation
   • Ensure transition team fully understands goals and their responsibilities.
   • Schedule regular status updates.
   • Review, adjust, repeat.
5. Contingency Plan
   • Developed as part of strategy.
   • Review and adjust as progress is made through primary strategy until goals are reached.
6. Post Transition Strategy Implementation
   • Adjust transition team to be in synch with post transition strategy.
   • Maintain relationships with key transition team members throughout post transition period.
   • Enjoy next phase of life.

Perfect, right? What can go wrong? Well, let me count the ways. Here are a few pitfalls you will encounter at one time or another—and hopefully not all at once or across one project!

1. Do as I say not as I do: There is a lot going on with the whole process and it is easy to have the owner get caught in the weeds. Remembering the ultimate goals is important. Each step should be able to be tied back to and support the end game. Just saying they will do it does not ensure it gets done whatever the task is. Gentle reminders to demonstrate and model the behavior and action needed to all is important, especially the next leaders.
2. Know what you do not know: Many business owners have become successful because they could and did it all. Knowing when to marshal what resources is another critical skill for the owner to have. Help them figure out what they do not know and support the path to finding out what is needed. Too often we all have seen business owners who take everything on themselves. This increases inefficiency and, in many cases, limits the business’s growth.
3. Knowledge is power: Now they just must share it. Our job is to help harness the power of the owner and help make sure the transition happens intellectually. It is one thing having the papers signed; quite another for the intellectual and mental shift to take place and allow the next leadership team really to take the helm.
4. Lack of commitment: While the plan is meant to be flexible to accommodate changes in personal and business circumstances, there still needs to be a firm timeline and certain trigger and decision points. If this is not clear, the plan meanders and never really gets executed, other leaders get frustrated (perhaps some leave). Once the plan is in motion, keep it moving barring any true dramatic game changing events.
5. Communication, communication, communication: While there are certain things that must purposely be held close to the vest, so to speak, much of the plan should not be secret to the main players—the ones it will impact the most should know. And if done properly, there will be good ideas and thinking that emanate from engaging more rather than less.

So, there you have it … a recipe for a well-planned transition. Quite a bit to bite off—literally. Just beware, at least a few times during this long and strange trip. You might just end up with a bit of indigestion. It comes with the territory. And if you can make it work, it is some of the most rewarding work you can do.

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Steven M. Egna, ASA, CBA, CVA, ABAR, CM&AA, is a leader of Valuation Resource Group, LLC, an Albany, New York M&A Advisory Services, valuation, and litigation support firm. He has over 30 years of diversified financial leadership and management experience specializing in transition planning and valuation analysis of all sorts. He brings a practical, hands-on approach to all his work.

Mr. Egna can be contacted at (518) 479-1008, extension 8023, or by e-mail to segna@valuationresources.com.