Businesses rarely remain the same for long periods of time. The marketplace is continually changing, and these changes are coming ever more quickly. Similarly, entrepreneurs who operate these businesses are also changing more quickly. The result is that many businesses are almost always in some form of transition.
Dealing with this transition has most commonly been termed “succession planning”. This term is used less today, however, because it usually meant passing on the torch to a family member and this is less common than it once was. The life of a business today, according to management guru Peter Drucker, is shrinking rapidly and is now approaching 20 years. This means that business “succession” today is more about exiting a business – or handing it over to someone else, within or without the family — as it is about passing it on to a child.
Today, business advisors talk more about planning for a “transition” in the business’s ownership than they do about succession. Generally, there are 3 options for an entrepreneur who wishes to exit from his or her business:
- Family transfer used to be most common and involves passing the business on to children or some other family member. While easier in many ways because the business operations have likely been taught to the new owner, family transfer can also be tricky because it can involve many non-business emotions.
- Management buyout or MBO happens when the management team purchases the business from the owner. MBO’s are becoming more common because they help ensure business continuity, retain “company knowledge” and experience, and ease the transition process for existing clients and business partners.
- Selling the business is probably the most popular method of exiting a business, because it can be simpler and less emotional than family transfer and many children today do not want to operate the businesses their parents have been involved with for many years. Also, sale often provides a retirement fund or financing for a new business start-up. In fact many businesses today are started and built by entrepreneurs simply to be sold. However selling a business requires extreme control because it involves much research and planning about such things as valuation, corporate cultures, continuation of the business vision and other issues.
It is in this planning for transition – which usually begins many months, sometimes years, before the actual event – that we can help.