Business Transition

Fishers Development Transition, Exit and Succession Services

Every business owner will eventually exit his or her business. The largest transfer of business ownership ever will change hands as Baby Boomers begin retiring over the next 10-15 Years.  The owners who effectively plan in advance will be the most prepared to maximize the value of their business, prepare a successful transfer to the next generation, and achieve financial independence for the next stage of life. Developing a comprehensive plan is the most important step you can take to prepare for a successful exit, protect your business, your family, and preserve the assets you have worked so hard to accumulate.

Fishers Development Group and its highly experienced professional partners can help you navigate through these complex waters. Our Services include:

1) Foundation Assessment and Pre-Exit Strategy

This is the basis in building the roadmap for your future, which includes the following:

• A complete statement of your personal and business goals.
• A Business Valuation to establish the current value of your business

Business Assessment

• Identifies areas that require gap closure and opportunities to increase the value of the business to make it more attractive to a potential buyer.
• A complete review of all corporate owner agreements, business and personal estate plans, and other agreements, restrictions or liabilities that could cause significant issues or costs when you transfer your business.
• A management successor assessment. Who will lead the business? Is there an effective plan to prepare them?
• A personal wealth analysis that will clearly demonstrate the owner’s ability to meet their post exit financial and lifestyle goals.
• Tax minimization recommendations
• Complete analysis of options and recommended alternatives for the owner to consider. This is the Roadmap that represents the basis for the key decisions and actions to be taken.

2) Plan Management and Implementation

After the Assessment and Plan are complete, FDG coordinates with the owner and professional advisors to put the plan into action. We will manage the effort and ensure that all of the key steps are completed in an efficient, timely and cost effective manner.

3) Business Growth and Improvement

Establish business improvements and growth plans so owners can achieve the best possible value from their business, right now and when they exit. Additionally, we focus on business readiness for transfer to help assure the confidence of future buyers.

4)Management Successor Development Program

Regardless of the transfer option selected, the business requires highly effective leaders to manage the business after the transfer is complete. FDG offers our five-step program that leads to long-term identification and development of key company leaders More…

5) Business Continuity and Contingency Planning

The Continuity Plan is essential in dealing with the unanticipated event. This could be due to death, disability or illness. The owner can no longer manage the business. Essential legal documents, board member agreements, asset protection and management succession are addressed. More…

 

FDG Five Step Management Development Process

1. Identify key skills, competencies and experiences required to successfully lead the business.
2. Select Candidate(s) for key positions and complete skills inventory and gap analysis.  Determine the key skills and experiences needed for the successor(s). (In some cases the owner may decide here that an outside executive hire is required to bring the skills needed for the future.)
3. Outline long term development and training plans for each person. Focus overall development, including, education, training, different job experiences, management skills, and customer relationships.
4. Monitor progress against plan. Modify actions as needed, but key is to stay on course.
5. Begin Transition process. Owner begins delegating responsibilities as they reduce their involvement.

 

Business Continuity/Contingency Planning

The Continuity Plan is essential in dealing with the unanticipated event. This could be due to death, disability or illness.  The owner can no longer manage the business. Essential legal documents, board member agreements, asset protection and management succession are addressed.

1. Emergency protection for the family. Income could stop if appropriate business estate plans and insurances are not executed.
2. Protection for the business.  Banks might be unwilling to retain current credit and leverage agreements. Cash to manage the business could dry up.
3. Key customers and employees might leave.
4. Steps must be taken to avoid conflict on who is immediately ready and designated to manage the business.
5. Appropriate Buy Sell agreements must be in place.

 

 

What is a Business Transition, Exit and Succession Plan?

Simply stated every business owner will eventually exit or transfer their business.  Everyone needs a plan that guides the owner to achieve their personal, family and business goals as they leave the business. Specifically, the complete transition planning process includes:

• Deciding the type of transfer for the business
• Choosing the timing
• Growing Business Value
• Achieving personal financial goals
• Ensuring the business remains viable and successful after exiting
• Protecting your business, and family from unanticipated liabilities.

Our planning process is also used to improve your business today. Driving the owners focus on growth, business improvements, effective management, financial reporting, developing managers for succession and addressing key liability and risk issues.

It is recommended that every business owner create his or her plan as early as possible. It can take 5-10 years to fully gain all of the benefits of a well-designed and executed plan. Whatever phase the owner is at, starting now will give them a much better chance of experiencing a successful transition from the business and into their new life

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Questions Every Business Owner Should Answer

• Do you have a future date/Year that you would like to target as the time to retire, chase a new dream, and cash in on the financial rewards from your hard work?
• How much money will you need to meet your financial goals after you leave your business?
• How much are you relying on your business assets to support your next stage in life?
• Do you know your best options for transferring your business?
  • Inside Sale/Transfer Options
  • Outside Sale Options

• Do you understand the full tax impact of selling, transferring and/or gifting some or all of your business? Do you know there are key steps that you can take over a number of years to significantly reduce this burden?
• Who will run your business when you leave? Are they ready to succeed you? Do you have a plan to prepare them?
• Will your business succeed after you leave without having your knowledge, leadership and experience?
• If you desire to sell your business,
  • Who are the most likely buyers
  • Do you know the realistic value of your business
  • Do you know that buyers are often requiring owners to finance much of the selling price?

• Will your customers remain loyal after you exit the business?
• Will your key employees stay on after you leave?
• Do you know all of your legal risks, covenants, restrictions, agreements or other factors that could prevent you from selling or transferring the business?
• What would happen to your business if you suddenly and unexpectedly could no longer manage your company either because of illness, disability or death? Is your family protected fully?
• If you are transferring the business to other shareholders, family members or employees, will the business lose financial leverage? Will you need to continue to guarantee loans to maintain existing credit levels?
• What needs to be done to make the business more attractive to potential buyers?
  • Are your financials audited and verifiable?
  • Do you have process, quality and operational tools in place?

• Do you desire to maximize the value of your business, create a smooth and positive transition and see your business succeed long after you exit?
• Do you want to control when you leave, how you leave and ensure the transfer achieves your goal?

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Why should Business Owners have a Transition Exit Plan?

• An early start enables the business owner to create better alternatives and control decisions on timing, transfer type, business improvements and financial planning.
• Prepare the company for maximum value and attractiveness to buyers.
• A good plan now will drive growth and increased cash flow long before exiting the business. Protect your business assets and your family.
• Stand out from other companies who will be on the market when yours is.
• Prepare your financial security. Understand the value of your business, how much it can be increased, manage personal assets and create a wealth plan that provides you financial freedom.
• Prevent and eliminate disputes between family members, shareholders, and employees.
• Create a situation where the business transfers easily and can continue to grow your legacy after exiting. A successful ongoing business is also important if the owner will be receiving payouts after exit or has an earn out position with an outside buyer.
• Allow for sufficient time to select the best inside or outside transfer options.
• Working on a successful business growth transition and exit plan will help with employees, partners and customers while you are preparing your exit.
• Provide the business owner with options to leave earlier if the business climate and environment is at a desirable position.
• Time to select and develop strong leaders for the future.
• A quality plan with sufficient lead-time enables the owner to achieve customer loyalty and retain employees essential to the future success of the business.
• Save significant money on taxes.
• Allows owner an opportunity to begin a slow transition from the business over time if desired, while mentoring his/her successor.
• Take actions to identify, reduce and eliminate key risks, liabilities, restrictions and legal actions.
• Ensure that the owner creates a plan that protects the business and family from an unanticipated illness, death or disability to the owner.
• An owner of a family business who includes or his/her entire family in early planning for their exit, fosters family harmony and commitment that will help ensure a smooth transfer.
• Owner creates a positive legacy.

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Risks of not creating a Business Transition & Exit Plan

It was Harvey Mackay who is credited with updating an old proverb, “Failing to plan, is planning to fail”

• Business unable to find a buyer, and owner closes and sells assets at liquidation prices.
• Value of business is lower than expectations. Declines over time. Owner is required to stay on longer than desired or exits business only to work to make up for lost wealth.
• Takes extended time to find a quality buyer. Business not ready to sell, problems and liabilities not addressed, and starting late causes delays in finding a purchaser.
• Company fails after transfer. New Owners/Management not prepared to lead. Business growth strategy not developed. Potential loss of income and payments to former owner.
• Taxes take an unexpected large bite out of sale/transfer.
• Family not prepared. Contention and conflict create major business problems and family disharmony.
• No suitable successor to take over the business, owner stays on.
• Conflict with partners causes ongoing issues for transfer. Buy/Sell agreements not clear, Payment timeframes not agreed and challenges coming to agreements under stressful conditions.
• Key customers leave and go to competitors.
• Key employees leave.
• Company ends up in chaos for many reasons after transfer. (E.g. 70% of family owned businesses do not survive through the second generation)
• Owner walks away with less money than needed to live the desired lifestyle.
• Owner not prepared emotionally for the change that comes quickly without the benefit of planning and transitioning out at a positive pace.
• Owner legacy hit by failure of business at exit.
• Sudden death or disability of owner causes company turmoil.
  • No clear leader designated
  • Ownership conflict
  • Business financing dries up
  • Family impacted financially due to lack of a protection plan.
  • Employees leave due to chaos and uncertainty

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Reasons Business Owners fail to develop a Plan

• Do not know what it is, or the importance of creating a plan.
• Do not see it as necessary right now. Unaware of issues that can and will arise.
• Do not feel they need one because they are transferring to their children.
• Too Busy. Just not enough time to work on it.
• Seems too complicated. Need to talk with many different professionals to put a plan together
• Overwhelmed by the amount of effort it might take
• Thought all I needed was a will and/or an Estate Plan
• “My CPA will let me know when I need to do something”
• Emotional to even think about leaving my business.
• Afraid that it might cost too much. Don’t know that a small amount of money invested will likely bring a significant return.
• Mindset is that “I will do it when I am ready to sell the business.”
• “Everything will be fine if I just run my business until it is time to leave.”

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When Should I start preparing my Transition & Exit Plan?

Start early!! Some professionals will advise an owner to have an exit plan in place when they start their business. We believe 5-10 years in advance of your potential transition date will provide the necessary time to provide the best opportunity to achieve your goals.

Timing matters for many of the Transition and Planning steps. It gives the owner control over key decisions, more options to consider, and the time to prepare personally for the impending changes in the owner’s lifestyle

A well constructed plan provides the owner with:

• Time to increase the value of the business
• Preparation of the next generation of leaders
• Provisions to take advantage of long term tax strategies.
• Positive work relations with employees/family to secure harmonious transfer of business.
• Enjoying the benefits of a business that is growing and improving every year.
• Maximization personal wealth.
• Flexibility to adjust time of transfer/exit. Having the business in a constant state of readiness to sell, the owner will be able to adjust their transition to a time when the market and business environment is right for them!

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Most likely Options for Transferring/Exiting the Business

• Inside   
  • Family gifting, buyout or combination
  • Employee Stock Ownership ESOP.
  • Management Buyout.
  • Sale to co owners/shareholders.
  • Close the business and sell assets usually at lower liquidation prices

• Outside
  • Sale to competitor or Strategic Buyer
  • Financial Sale to investor group
  • IPO (very rare for mature businesses)

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FDG Transition Management Process and Approach

Fishers Development Group specializes in assisting small and medium sized businesses through the entire Transition and Exit process. With our innovative approach, we eliminate the complexity, confusion and wasted cost; while bringing a complete solution to business owners. There are several key steps in our process.

Phase 1: Foundation Assessment and Pre-Exit strategy

• The assessment is where we capture your business and personal information, your goals, evaluate your current state of readiness to transition, assess and identify major gaps in today’s current state, and provide a strong list of recommended alternatives for you to consider in helping achieve your objectives.
• FDG work’s with a team of professionals, including attorneys, CPA’s, wealth management advisors and others who contribute their expertise in the Transition Management Process. FDG then coordinates the team to provide a sound effective plan with alternative solutions that best address the owner’s short and long term goals.

Benefits of the FDG planning process

• The Transition Management Plan is cost effective and provides the proper roadmap and choices for the respective owner. This supplies the owner with an opportunity to make informed decisions, which helps them avoid spending endless time and money meeting with individual professionals working on often-conflicting advice. In other words, the decisions, alternatives and actions of the owner are narrowed and clearly stated.
• FDG presents a consolidated set of information to the owner which illustrates the benefits and opportunities at hand.
• Alternatives are clearly presented, the owner can decide when and how to proceed. The comprehensive Transition Management Plan is completely customized to the owner’s personal and business aspirations.

Phase 2:

 Work with the owner to coordinate the development of a detailed plan based on the owners alternatives selected. FDG ensures all of the professionals that are required to contribute to the plan deliver their services in a timely manner and in a cost effective manner.

Based on the owners objectives in preparing the business for transfer, and improving its valuation, FDG works develops a Growth and Improvement Plan specifically designed to help the owner achieve his/her goals.

Depending on the strategy selected by the owner, it is essential to determine a management successor development plan and process. This is often overlooked and is one of the most critical elements required to ensure the successful continuity of the business after the owner exits. This phase also includes other transition elements such as;  employee communications, ensuring that the successors are connected to key customers and creditors have a high level of confidence with the new leaders. It is critical that the owner not be required to maintain any loan guarantees after transferring ownership of the business.

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