Home Management Evaluating your business before a transition: Creating the route to your final destination

Evaluating your business before a transition: Creating the route to your final destination

by Guest Writter
Mary Van Skiver

Regardless of the timing or the method of your business transition, developing and executing a roadmap for the journey takes time, thought and effort. This often makes it difficult to turn the key and start the first leg of the adventure. However, owners and leaders who have the desire for their business to not only survive, but thrive for years to come, engage their team to develop a plan with elements to ensure successful navigation to their final destination.

For any business owner considering a transition, the first aspect of the journey is to properly define objectives, including the timeframe and method of transition. The next step includes an evaluation of the business, as well as an analysis of personal, financial and long-term lifestyle needs. These components establish parameters to engage in the enhancement of value, and assist with minimizing risk and increasing cash flow.

Regardless whether the transition will head in an internal (family or employee ownership) or external (sale to a third party) direction, the initial preparation includes similar steps. These include the valuation of tangible and non-tangible assets, beyond the obvious physical property and standard balance sheet items. Another aspect is an assessment of operating, buy-sell, and non-compete agreements, as well as other process and content documents. Traditional accounting systems are structured to provide regular feedback and assess value on tangible assets, yet intangible assets – intellectual property, brand value and goodwill – are the direct drivers of business attractiveness to successors and construct an estimated 80 percent of actual business value. It is important to measure and report on these components as well as the traditional measurements to determine the true value of the organization.

There are four areas of intangible value (the four C’s), which include: human capital, customer capital, structural capital and social capital. Together these comprise the aspect of intellectual capital, which Thomas A. Stewart refers to as “…the sum of everything everybody knows that gives it a competitive edge.” As the economy has become a knowledge economy, 60-70 percent of product costs may be attributed to the value of intangible assets.

Transferability of the four c’s is the key and primary driver of value and the interest of others in the transition of your business. Scalability, owner independence, organized systems and processes are elements that create or enhance value and differentiate and position the organization for optimum transition success.

All transitions are different, but across the board, execution of a documented and well-communicated strategy ensures transitions are high in value and create long-term satisfaction for participants and future owners.  A clear, simple strategy and a business that has transferable capital builds and creates value both today and into the future.

With an estimated $4.5 trillion in business assets transitioning over the next 10 years, it is critical that business owners take the time to plan and provide opportunities for an effective transition. This process includes identifying and developing key successors and staff, which may include providing growth and training opportunities to prepare for future roles.

Regardless of the method or timing of the transition strategy, a strong management team will make the transition as smooth as possible while directly impacting the value of your business. This team will provide a resource for employees, create less reliance on the owner and/or executive leadership, and will also ensure employees rely on the developed and communicated contingency plan. This plan may include key person insurance, life insurance, buy-sell agreements and management succession plans that all contribute to the documented plan and allow for the organization to be prepared for the unexpected.

Transition planning is a journey, not an event. It is often a very complex process and one that may take your focus from your day-to-day, critical tasks. Therefore, you should consult with experienced professionals, such as a transition specialist, to maximize your chances of an optimal outcome.

It is never too early to prepare and strategically position your business, employees and family for any future changes. A strong plan, put in place early, ensures better outcomes when the time arrives to enjoy the next leg of your journey.


About the Author

Mary Van Skiver is a senior manager at Rehmann and plays a team lead role assisting businesses with the design and implementation of transition plans while assisting business leadership and staff throughout the process. She is certified through the Exit Planning Institute as a Certified Exit Plan Advisor (CEPA) and also through the Society for Human Resource Management and HR Certification Institute as a SHRM-CP and PHR respectively.

Contact Mary today at mary.vanskiver@rehmann.com.

Source Credit: Chris Snider : Walking to Destiny

You may also like

Leave a Comment