Photo from Pexels
One area of business that we deal with on a consistent basis is business transition. There are a few options when it comes to business transition, but ultimately the decision comes down to what is best for you in your particular situation. Having said that, we want to give you some information on what your options are, and how to get ready for the transition of your business.
The first thing you must do in order to have a successful transition is ensure that you are ready for the transition, and your business is ready as well. Careful planning in these situations is paramount, and entrepreneurs must make it a top priority in order to maintain the value of the business. Failure to properly plan could ultimately even affect the viability of continuing. Seeking advice from a qualified third-party professional who specializes in mergers, acquisitions or succession is always a good idea, since it forms an unbiased opinion based on facts and findings. Your bankers, financial partners, lawyers, accountants, management and family will of course be major stakeholders and help with the decision making, but gaining that third-party unbiased insight will help immensely. With this planning, of course, comes the decision on what kind of transition it will be: succession, sale or closing.
Succession planning is a very common route, but causes a lot of uncertainty with entrepreneurs on how to go about it. Whether it’s a family member, employee, friend or stranger, having a proper succession strategy is key. According to Small Business BC, over 50% of businesses do not have any sort of formal or informal succession plan in place, and that is a large reason why entrepreneurs have so much trouble when the time comes and that plan is needed. Access your resources in order to create this plan, utilize your lawyer and accountants to assist with the technical parts and be sure your plan is the best for your particular situation.
Selling the business is another very common practice, and can be accomplished in various ways. Many have a succession plan and do an internal sale of the business, either to management, and employee or a family member. If this is the route you take, be sure to operate with transparency, dig deep on the financial aspect, choose the best possible people to take over and retain those positive relationships. External sale options are also very common, especially when someone is looking to sell and have no part of the business anymore. This option usually leads to getting the best possible price for the seller, but again, preparation on this is key. Be sure to know exactly what your business is worth by evaluating projected cash flows, risk and other aspects. Information like financial statements, tax returns, fixtures and equipment, value of inventory, employees, customer lists, lease, franchise agreements, outstanding loans and other aspects will all be needed if you are selling your business.
Closing your business will require you to complete and file a dissolution notice with the provincial corporate registry, and as an article from Small Business BC states, will depend on your business structure.
There are many options when it comes to business transition, whether you’re planning on passing your business on to a family member or other stakeholder, sell your business internally or externally, or closing your business. The biggest issue is choosing what is best for you based on your current situation. Having a proper plan in place is key, and to do so you may need help form stakeholders or a third party whose expertise is in business transition. We hope this gives you a bit of a better understanding of what your options are and how to assess which is bet for you.
For an in depth article on the key players in succession planning from Small business BC, click HERE
To access a FREE E-book from BDC guiding you through the different options in business transition, click HERE.Economic DevelopmentEntrepreneursGeneral Business