May 5, 2017 | Patrick McFarlen

In this series of articles, EKS&H Capital Advisors Partner Patrick McFarlen explores the personal and business considerations involved in a successful business transition. In this first article, he looks at some initial questions you should ask to build a transition plan that will achieve your goals.

Part 1: What, Why, Who, When, and How

Every business owner should have a transition plan regardless of the age of the business or the owner. In the event you win the lottery and decide to never work again, will your business continue to thrive or cease to exist? At the same time, as an owner gets older or the company becomes more mature, a long-term ownership strategy becomes increasingly vital to ensure a successful transition when the time comes. As the baby boomer generation begins to retire and the largest generational transfer of wealth the world has ever seen unfolds, the owners of many middle-market, privately held, or family-owned businesses in the U.S. are thinking about their own succession.

Two recent clients illustrate drastically different scenarios. The first client was burnt out and insisted on selling his business within six months. The second knew she wanted to sell eventually but was thinking about a longer-term five-year plan. The common truth in both cases is simple: the earlier you plan, the more options you will have. As your transition possibilities increase, the number of goals you achieve and the ease with which they’re achieved will increase. Our goal in all scenarios is to give clients as much flexibility as possible based on what’s important to each of them. To define what’s important, think about the familiar series of questions: what and why, who, when, and how?


The first question is obvious: What do you hope to accomplish by selling and why? This may seem like a straightforward question at first, but when we begin to talk about why it’s a goal, it often elicits questions the owner hasn’t considered. Some owners do not want to work at all anymore, but others might be interested in future consulting.

Another important initial question is, “What is or is not important to you in the transition?” Maybe it is important that the name stays the same or the business and its operations stay local. Owners frequently have strong opinions about the future of their business that not only impact the transition plan but also the amount of financial return expected. Identifying these priorities is essential in building a solid transition plan that doesn’t just meet the result of a sale but, more importantly, the underlying reasons behind it. Even the best laid plans still can be changed when you, as a seller, give up control of your company.


Now that we know why you want to sell and what you hope to accomplish, we can begin to identify the types of buyers to consider. Do you have adult children or a management team capable of running the business? Do they have the financial means to purchase it? If the individual you’ve identified answers “yes and no,” then the need to begin planning for a longer period of time before transitioning becomes more important. In the case of our client who wanted to sell within six months, his short time frame drastically limited to whom he could sell.

By planning the transition well before you’re ready to sell, you can expand the pool of potential buyers and even help get desired buyers to a place in which they’re able to take over. In the case of my client who wanted a five-year plan, she was able to adequately train her management team to succeed her, which would not have been possible without that lead time.

Beyond a specific person, different types of buyers (e.g., management, employees, financial buyers, strategic/competitors, etc.) can provide different options to help sellers meet their unique transition goals. (Watch this series for more information on the types of buyers and what they mean for a seller.)


With possible buyers now identified that align with the goals of selling, consider the ideal time frame and look at valuation trends or market indicators that may affect the time frame with potential changes to expected financial returns. If the market outlook in two years is bleak, you might consider speeding up the sale or extending the transition to wait for a more optimal time to sell. In the case of my client who wanted to sell in six months, when he discovered the additional return that could be realized by selling in 18 months, he hired additional staff to take over his responsibilities and waited for the sale. The result was a higher purchase price, which more than made up for the additional costs while satisfying the client’s desire to step away.


Now that we know your goals in selling, who you want to sell to, and when the ideal timing is, we can finally begin to plan for the actual transition. A team of advisors is needed, including lawyers, investment bankers, accountants, and tax professionals, to identify tax implications and risks and maximize value and return. Considerations previously identified, such as a management team eager to buy but without the means, or the financial future of your children who won’t be running the business, will be at the crux of how the technical implementation takes shape. Further, by identifying specific goals, buyers, and time frames, we can provide financial modeling insight into both the business and your own personal finances after you sell.

By working with a team of advisors who can provide both consulting and technical guidance, you get a unique, holistic approach to transition planning. Individually, most accounting firms can provide little insight into financial modeling and assessment while boutique valuation firms provide technical expertise without analysis and strategic advice. The approach at EKS&H Capital Advisors is a refined, tested, and proven method resulting in a successful transition at the right time that may be more likely to achieve your goals and maximize returns.

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