5 Tips for Business Transition Planning

November 4, 2021 Oak Street Funding

Business Transition Planning

Business transition planning is one of the most critical strategic steps a company owner can take. Still, it's one far too many don't think about until faced with an imminent retirement or another catalyst for change. That's unfortunate because failing to perform business transition planning can lead to adverse outcomes.

Typically, business owners have invested many years -- often, decades -- of their time and energy into developing and growing their companies into successful businesses. Business transition planning is critical to obtaining the greatest value possible for their investment.

It also enables owners the time to reflect and, ensure they’re ready to make one of the most important changes in their lives, while also setting-up the company for success after the transition to protect the interests of employees and customers.

Business transition planning is for everyone

Whether a company is brand-new or the owner has begun to think about exit strategies, business transition planning should be a part of every company's strategic planning.


First, whether an owner intends to operate the business for decades or is getting ready for retirement, eventually there will be some kind of exit. Business transition planning involves issues related to that exit and structuring the company, so the outcome is advantageous.

Second, life and business are full of unexpected situations. For example, an owner could suffer a serious injury or illness that interferes with their ability to continue running the company, or another company could surprise the owner with a lucrative buyout offer. A central part of business transition planning is anticipating situations like these and responding to them.

Business transition planning doesn't only provide benefits when it's time to implement a transition strategy. By focusing on maximizing the value of the company and ensuring it has the resources and people to succeed, business transition planning continually improves operations and achieves several vital purposes, including:

Exit strategies are a crucial element

Even if you don’t intend to exit the company for decades, a key component of business transition planning involves considering possible exit strategies and preparing for each. Not only does that prepare you for any opportunities that may crop up unexpectedly, but it also provides insight into how you can fine-tune your operations to increase income, maximize value, and prepare your team for the inevitable transition.

If you fail to plan, you give up control of the future of your business and your financial well-being. Any number of events could lead to the wrong kind of exit or force you or your partners and heirs to sell the company under unfavorable circumstances.

Start with your goals

Business transition planning involves creating strategies to prepare for the future, so a smart place to start is taking time to envision the outcome you desire.

For example, you may dream of retiring while you're still young and healthy enough to be active. Maybe you're a golfer who fantasizes about spending every day on the green, or your bucket list involves seeing the world with your spouse. You may envision turning the company over to your children or perhaps to the staff you've come to count on.

Developing a clear picture of the future you'd prefer is the first step in making that future happen.

You and work. Do you hope to keep working after the transition? Some business owners who enjoy their work pursue a “sell and remain” strategy through which they transition ownership to employees or an outside buyer but continue to remain employed by the company for several years.

You may have given thought to part-time consulting, or perhaps you really do want to stop working altogether. Your plan should reflect what you hope to do.

Future owner. Whom would you like to sell the company to? Do you have children who are capable of (and interested in) running the business? Would you rather turn things over to your valued employees? Does a merger with a local competitor or larger out-of-town company seem to make the most sense? Narrowing down the options will help you identify potential buyers when the time comes.

Using the proceeds. Ideally, your transition will be financially rewarding given the work you've put into growing your company. What would you like to do with that money? Do you intend to move to a lovely retirement destination or travel? Would you rather see your assets help your children and grandchildren? Does philanthropy appeal to you? How you intend to use the proceeds should determine how to structure the eventual deal.

Don’t do it alone

Business transition planning begins with your goals, but it shouldn't be a solo effort. Many factors need to be considered, from tax issues to estate options.

That's why it makes good sense to assemble a team of professional advisors with the legal and financial expertise to guide your planning process and call attention to issues you may not have considered.

At the very least, you'll want to involve your personal accountant, financial planner, and attorney.

Revisit your plan regularly

Business transition planning is not a one-time event, especially if you have a long-term plan. At least once a year, pull out your plan and examine it in light of new developments.

When you originally wrote the plan, you may have hoped to turn the company over to your children, but they have since told you they have other career objectives, so you may need to shift your planning.

Or, you may have decided to accelerate your exit. You will need to modify your plan accordingly.

Implementing your plan

Ideally, you'll have the time to handle the transition exactly as you hoped. A year or two before you're ready to execute your strategies, sit down again with your team of advisors to make sure everything still makes sense, and there haven't been any changes in the economy or laws that could derail your efforts.

Once they green-light your efforts, you can move forward with confidence, knowing you’re more likely to achieve your goals because you planned ahead.

Getting the funding you need

Investing in developing a transition plan or implementing your plan may create a need for additional capital. For example, if your plan includes selling your company to employees or family members, you may have to help with financing the transaction.

When business owners need to borrow, they often assume the best for funding is bankers in their community. However, by nature, bankers are more comfortable with collateral-based financing than providing capital to support a company’s future.

An alternate for companies like yours is specialty lenders that are accustomed to working with your industry. Such lenders understand how a business like yours operates and are familiar with the nature of your income streams so that they can approach the underwriting with realistic expectations and an appreciation for inherent risks.

A growing number of business owners in your industry are turning to specialty lenders like Oak Street Funding, who are accustomed to providing capital to companies like yours.

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Disclaimer: Please note, Oak Street Funding does not provide legal or tax advice. This blog is for informational purposes only. It is not a statement of fact or recommendation, does not constitute an offer for a loan, professional or legal or tax advice or legal opinion and should not be used as a substitute for obtaining valuation services or professional, legal or tax advice.

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