By Stewart Darrell, CFA

If the succession or sale of your business is on the horizon, there are many steps to be taken before venturing down this road. You’ll need to tailor your strategy and financial approach to your unique needs and goals to ensure a successful transition. Here are some ideas to get you started.

1.   Take stock of personal and business finances

The first step in planning to transition out of your business is to figure out where you stand financially on both the personal and business fronts. Building a thorough understanding of both areas, seeing where they may intersect, and listing potential issues will lay the groundwork for creating a sound financial transition. Take stock of these key elements:

•    Investments and retirement planning
•    Estate and insurance planning
•    Cash flow planning
•    Risk management
•    Tax analysis and planning

If you’re having trouble separating the business and personal, that’s okay. It’s common for many business owners to focus exclusively on the financial well-being of their business and tie up most of their wealth in it, assuming it will later serve as the path to retirement. However, placing all of your wealth into a single source and industry (your company), opens you up to a tremendous amount of risk. If you fall into this camp, you can work toward diluting that risk concentration now. Start by actively building a significant investment portfolio to diversify your wealth beyond your business.

2.   Identify your goals

After pinpointing your current position on the personal and business fronts, it’s time to set your sights on the road ahead. List your near-term and long-term financial goals for yourself and your business. The purpose of this exercise is to ensure that you’re on a path to accomplishing all that you want to achieve and help you gauge the best time for a transition.

3.   Know your value

The value of your business becomes increasingly important the closer you get to transitioning out of it. Knowing what your business is worth and having data to support the valuation is critical. The valuation may point to changes needed to enhance your company’s value or minimize existing risks. These changes could pay off in a big way later. For some, it may be beneficial to have a business valuation conducted early and frequently so that you can make more informed decisions that impact the value of your business. These objective valuations can also help avoid surprises at closing and may help you get into the mindset of potential buyers.

4.   Chart an exit strategy

Just as you needed a plan to start your business, you need a plan to exit from it. It’s a common mistake to begin crafting an exit strategy at the bargaining table, which forces many business owners into less-than-ideal situations. Don’t leave anything to chance. It’s best to create a succession plan early (even if you’re nowhere near selling your business) so that you have time to prepare financially and emotionally for life after the sale. Starting early is especially important if the value of your business goes hand in hand with your expertise. You’ll need time to train and groom the person that you’ve chosen to fill your shoes. That person’s readiness will play a critical factor in the valuation of your business at the time of transition.

No two succession plans look alike, and the formal plan you put in place should ensure the successful transition of your business and your unique life situation. In addition to establishing a clear financial and legal backdrop for the valuation and sale of your company, you should ensure that you and the buyers understand the role you will or will not play after the purchase.

5.   Turn your vision into reality

As you are working through the steps above, you will want to be simultaneously striving toward your own vision of post-business bliss. To turn your vision into reality, we can help you engineer an integrated strategic plan to identify what is possible with your financial resources. We analyze deal terms and conduct data driven scenarios long before the sale so you can make the big decisions with confidence and smooth the path to your bright future.