Four Business Succession Mistakes to Avoid

As a business owner you’ve put in the long hours, navigated the endless ups and downs and turned your dream into a viable business. Congratulations! But have you thought about what’s next? For most business owners, there comes a day when it’s time to move on. Maybe you want to relax in retirement, pursue a different passion or even start a brand new venture.

Whatever your next phase entails, having a blueprint to help you transition out of your current role is vital. A step-by-step approach can help ensure you (or your designated heir) receive your company’s full potential worth. Doing this on your own–or relying on only your business’ accountant or lawyer– can be risky. It’s important to do it right to help maximize the value of the company you’ve worked so hard to grow. Working with a professional who knows business succession inside and out can assist you with understanding and planning for the various transition options available to you.

Years of experience have shown that these are the four most common mistakes owners encounter as they navigate the transition process.

1. Failure to plan

Most business owners think they have a plan. The problem is they haven’t taken the time to put it down on paper or shared it with key players. It’s understandable. Running a business can involve long hours and many owners feel like they just don’t have the time.

But for a succession to be successful, you need to nail down the numerous financial requirements. Coordinating with experienced financial professionals can help you to do that. Even if the goal is to transition to a family member, a detailed plan helps ensure everybody is on the same page when the time comes. Also, don’t limit yourself to a single succession option. Circumstances can unexpectedly change and you need a succession plan that’s flexible enough to change with them.

2. Don't understand the scope

Sometimes business owners have taken the time to come up with a plan and written it down. But their plan is too general. It fails to address the many necessary details or isn’t a formalized legal document. For instance, is the plan written as a buy/sell agreement? What happens if you suddenly can’t work and need to move the timeline up? Are you selling it or gifting it to a family member? All of these things and much more needs to be captured in a formalized agreement.

An experienced succession professional can help identify where the pitfalls are and help you navigate around them.

3. Business isn't valued correctly

There are many nuances to determining a business’ market value. Multiple variables and unknowns must be accounted for so simply using a multiplier (such as 7X or 4X the revenue) may not be in line with what the market will support, especially when looking across different business sectors. As a result, you may plan for a number that is too high or conversely not receive a fair market value for your business. That’s why working with an unbiased professional can help you with the analysis of your business and discuss the pros and cons to the valuation methods used to complete a business vaulation. 

4. Neglect to hire the right team

Often, business owners are not aware of the complexities involved and may decide to handle the transition themselves. Or they believe the company’s accountant or lawyer is all they need for the transition process. Employing a team with succession experience helps to navigate the complex succession process. Business succession is a highly specialized area. Just as you wouldn’t hire a carpet cleaner to clean your teeth; you should consider hiring a banker, a certified public accountant, an attorney and a wealth planner that have experience in this area.

A qualified merger & acquisition team can help reduce or mitigate taxes, set up charitable giving, help ensure the business is properly valued and take care of the hundreds of other critical yet often overlooked steps to execute your succession plan.

Yellow Cardinal M&A Services has the specialized knowledge and unbiased view to evaluate your options and help guide you through the succession planning process. Just as we’re here when you build and grow your business, our specialists are ready to help you exit and transition to what’s next. Our team is always open to having an initial conversation.

We’ll help you evaluate your options and create a plan that addresses your needs and timeline to transition your business.