I meet a lot of business owners. Many of them are referred to me from bankers, accountants, and attorneys for one reason or another; they need strategic advice, they need financial assistance, their books are a mess, they don’t have structure, their software doesn’t support their operations, etc. Our team helps with all of these issues and solves the root cause of our clients’ financial and operational issues.

What I find most fascinating about working with business owners is their desire to invest in their business. I have yet to meet a business owner who says, “I’m not really that passionate about building my business” or “I don’t want to see the business be successful.” Often times, the business is their identity.

BUT.

What happens when it’s time to transfer the company? What happens to all the systems, relationships, equity, trust, knowledge, and (perhaps most important) the reputation that was developed over the years? If the transfer of ownership is botched or the succeeding ownership drives the company into the ground, all the things the founder invested in are in jeopardy of being destroyed.

Here are some topics to consider to put your company in the best position (financial and otherwise) to be successful.

Developing a plan. Like I tell all my clients, you can’t execute a plan if you never made one. You can’t be strategic and accomplish big dreams if you didn’t take the time to develop your plan. Perhaps one of my favorite quotes comes to mind, “If you fail to plan, you plan to fail.” Thanks Ben Franklin. So, what is your plan to transfer your company? Is it to sell to a PE Firm? They have their own set of requirements that you should be aware of early on. Are you going to sell the company to your kids? Maybe you should ask them if they really want to take on that challenge. Are you going to hire a broker? They can be expensive but worthwhile if you find the right one. Regardless of your goals, you need to first develop a plan. Here’s a link to an article I wrote, the Power of Charting the Course.

Lining up a successor. No company can survive without a leader. Who’s that going to be? Can you (the founder) successfully lead the company if you want to “retire?” (I put retire in quotes because many entrepreneurs I talk to get bored after they retire and end up starting other business ventures.) How can you be sure that you’ve found a dedicated, talented, and resourceful leader to take the reigns after you decide to leave? You can interview a dozen potential CEOs to take over, but nothing beats good old fashioned work; working alongside your future leader and developing them into the leader your business needs.

Cleaning up your balance sheet. When was the last time you sat down with your accountant and reviewed EVERY LINE on your balance sheet so you can thoroughly speak to each line item; all the assets, all the liabilities and all the equity accounts. Many accountants I work with love taking the time to teach their clients about their balance sheet (so long as it’s not February or March; for some reason CPAs are stressed out these months…) The balance sheet holds a lot of information that many business owners overlook until it’s too late. Think your business is going to qualify for a loan as part of your buyout? Then this is a critical part of the process; ensuring you have positive equity (more assets than liabilities.)

Investing in assets. I was speaking with a retired veterinarian a while ago. He didn’t go to business school. He didn’t even take any accounting classes in college. But, he and I spoke for over an hour about business principles that he had learned from building and running his veterinarian practice for 20 plus years. He talked about investing in assets; buildings, specifically. He figured out that banks and potential buyers wanted to see a profitable organization that successfully paid back their debt. He also figured out that owning the real estate in his business as a separate entity so his succeeding business could pay him rent long into retirement. 

Being profitable. Many business owners, and myself included, want to pay as little taxes as possible. Many CPAs pride themselves in reducing their clients taxable income and many clients see value in hiring CPAs so they “show very little profit.” BUT, did you know that lenders want to see profit? Did you know that it’s really hard to sell an unprofitable company? In this article, I discuss 10 ways to become more attractive to lenders. It’s important to be attractive to lenders if you want a bank to help give your business a loan for your buy out.

Establishing Operations. Businesses (and the people who run them) tend to thrive with sound business operations which starts with structure and predictability and usually looks like a dashboard. I recently wrote this article about building a dashboard. Business operations tells everyone who is supposed to do what by when, how do you know when they’re done, and how can you measure their work. You can only do this with operational integrity. This is a term I’ve developed to mean the literal integrity of a businesses operations; how well does everything work and how you know. Often times, the software a company uses supports operations.

Structuring the buyout. Want a lump sum and sail off into the sunset? That’s one option. Want a check in the mail every month? That’s another. Want to transfer ownership over time? Yet another option for a buyout. There are any number of ways to structure a buyout. If you think about this early, discuss with your accountant, attorney, banker, advisor, and family, you can develop a plan that fits your goals. Do this early enough and you can ensure your long term success. 

Determining ongoing involvement. Typically the buyout (see above point) structure matches the ongoing involvement. Meaning this – If you want to get paid every month for the next 5 years, there is likely going to be some level of involvement with the business to ensure it can actually make those payments for 5 years. This might not be appealing to some business owners, so they choose little to no involvement and a lump sum payout. 

After all that. What is the KEY to a successful business transfer? From talking with all the business owners I have, I have come to the conclusion that the KEY to a successful business transfer is to enjoy a continued legacy. This tends to mean that the businesses’s reputation is upheld, its finances improve and the found can have as much (or as little) involvement as desired. 

You can legally transfer the company any number of ways. See this link from Fit Small Business on their 5 ways to transfer a company. But. Transferring the company isn’t really the problem. A solid business attorney can help you legally transfer the company. The problem is making sure the legacy continues. That’s the challenging part.

What do you think the key is to a successful business transfer? I’d love to hear your thoughts.