Discover the importance of early business transition planning. Learn how to safeguard your legacy, optimize wealth transfer and navigate uncertain economic times effectively. Start your strategy now for lasting success and peace of mind.
Key Takeaways:
- Early planning offers transition choice, predictability, preservation of business value, aligned personal wealth planning and time to coordinate stakeholders and professional advisory.
- Business owners underestimate the importance and complexity of business transition planning, leading to negative financial outcomes.
- Uncertain economic times can potentially present opportunities for business transition planning including greater tax minimization and more efficient business equity transitions.
When it comes to business transition planning, there’s no time like the present to begin a process.
Many private businesses fail to achieve business transition success. The reason? Lack of planning.
Business transition is often the most significant financial decision a business owner will make. This decision has significant impact on the owner, family, business, employees and even the community. Far too frequently business owners delay or never plan for the transition of ownership. Starting the planning process early allows the time necessary to develop and execute a unique strategy fully aligned with an owner’s personal, family and business financial goal sets.
Entrepreneurial-minded business owners tend to focus on building and growing their businesses, less so preparing early for ownership transition. The result is often unfavorable financial and emotional outcomes. Having a custom transition strategy in place can be the difference between ensuring a legacy and unsatisfactory results.
There are many ways to transition a business including transitioning to the next generation, a key management group, employees (ESOP) or an external buyer. The earlier an owner starts the transition planning process, the higher the probability for success. Even if the transition is years away, early planning can position the owner to achieve a unique vision for the future of their business, ensure a desired legacy and gain significant peace of mind.
Business transition is a high-stakes decision that requires beginning the planning process early. Taking a long-term approach allows for optimally designed transition strategy.
Early Planning: The Key to Success
We have reviewed the downside of delayed planning. Now, let’s identify clear benefits from beginning the process early, well in advance of transition execution.
Beginning the transition planning process early can harness tremendous benefits including:
- An opportunity for owners to become fully educated about business transition planning.
- Assessment of which transition paths best align with personal, family and business goals.
- Gain an understanding of the full array of opportunities and challenges inherent in transitioning the ownership of a business.
Advanced planning also provides time for owners to define their financial objectives and control the how, when and to whom aspects of the transition.
Successful Business Transition Essentials
Business transition means something different to every owner and every company. Some involve selling the business to a third party while others center on an intra-family transition. All share key requirements to help shape an effective transition strategy.
Understand the Business Transition Process
Successful business transition requires a high degree of coordination of personal, financial, family, tax and legal issues and objectives. It also requires coordination among key business advisors to balance the qualitative and quantitative aspects of the transition. Owners must have the knowledge to understand the advantages and disadvantages of alternative transition paths and the implications each path has to meeting personal, family and business financial goals.
Visualize the Ideal Business Transition Scenario
What does successful business transition mean to you? Ask the tough questions today because the longer the wait, the tougher it gets. Questions may include:
- How will alternative business transition paths impact lifestyle, family and wealth?
- What are the needs and wants financially from the business to meet long-term objectives?
- What is the best way to initiate the transition process?
Access Professional Business Transition Advisory
Experienced transition advisory can help identify and map out the opportunities and complexities of a unique business transition situation and ensure alignment with financial goals. It can also add objectivity to the challenging financial and emotional decisions inherit in planning the transition of a business.
Insight: Assembling a business transition team of trusted advisors including experienced business transition advisory, accountants and lawyers will prove vital to creating the best transition strategy. The bottom line: meet your objectives by seeking advisory to help define and prioritize financial goals and assess the impact of alternative scenarios. This will help position transition for success.
A successful transition strategy requires interfacing with seasoned transition advisory to prioritize goals, define transition vision and to access expert transition analysis capability.
Key Business Transition Discovery Questions
Owner:
- Has the owner acquired a level of business transition education to fully understand the advantages and disadvantages of alternative transition strategies?
- What do owners need to know to ensure proceeds from the business will meet a desired financial lifestyle? Most business owners don’t realize how much money they will need to net from a transition scenario to meet their financial goals. To assess, owners need to dig deeper with these important questions:
- Will I be financially able to live comfortably for the rest of my life?
- Will I be able to do the things on my bucket list?
- What are my options if transitioning my business does not provide financial security?
- Is personal planning aligned with business transition strategy?
- Are tax minimizing strategies incorporated into overall planning?
- Is the owner emotionally secure about executing a transition scenario? Is there a “gameplan” for post-transition life? Owners need a strategy to extract themselves from the business and prepare for what they want to do post-transition.
Business:
- Understand the suitability of alternative business transition paths and their impact on stakeholders, the business, family, employees, and community before execution.
- Identify the roles of financial forecasting and valuation in a concerted business transition strategy.
- Evaluate the next ownership group – whether a transition to the next generation, key management or employees (ESOP). If an external sale is likely, understanding the roles of investment banking and private equity are critical.
Uncertain Economic Times - Opportunities
In the face of uncertain economic conditions, many owners take a “wait-and-see” approach to business transition planning. This reaction, while understandable, can lead to missed opportunities. However, shaky economic times can present potential opportunities for transition including:
- Greater tax mitigation.
- Greater equity transition efficiency.
Even if a business owner has no intention of transitioning soon, early development of transition strategy will help avoid the challenges of economic rough waters, capture transition opportunities unique to a less-than-robust economy and best position owners to achieve financial goals and business transition success.
Don’t let tough economic waters discourage you from beginning transition planning. There are many strategies that can capitalize on economic downturn.
Ready to Begin Business Transition Planning?
The lifecycle of a business includes phases; startup, growth, maturity and transition. Owners are typically successful with all phases save transition planning. But make no mistake, all businesses will transition with or without a custom strategy in place. The creation and implementation of a custom transition plan, in concert with profession transition advisory, will ensure business owners are set for the next chapter in their lives.
Work with the business transition advisors at Comerica. Our knowledgeable advisors can help you lay out a robust business transition plan and avoid future headaches. Contact your Comerica Relationship Manager or contact Comerica today.
NOTE: IMPORTANT INFORMATION
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This is not a complete analysis of every material fact regarding any company, industry or security. The information and materials herein have been obtained from sources we consider to be reliable, but Comerica Wealth Management does not warrant, or guarantee, its completeness or accuracy. Materials prepared by Comerica Wealth Management personnel are based on public information. Facts and views presented in this material have not been reviewed by, and may not reflect information known to, professionals in other business areas of Comerica Wealth Management, including investment banking personnel.
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