Todd Bachelder
Updated: July 30, 2018
How To
Ride the upcoming wave of business transitions
By Todd F. Bachelder
Retiring baby boomer business owners are expected to sell or bequeath $10 trillion worth of business assets over the next two decades. Here in Maine, hundreds, if not thousands, of businesses will go through ownership and management transitions over this the next decade or so. Millions of dollars’ worth of enterprise value will be in play — dollars that will either be realized, enhanced or lost.
Typically, the business to be transferred or sold represents a business owner’s lifetime of work. In many instances the selling business owner will be looking for a business sale and ongoing business success to provide a very meaningful part of his or her retirement income.
The sooner an owner can start to plan for company transfer or sale the better. A successful business exit — and realizing the fruits of an owner’s many years of labor — is not an event, but rather a process. And it is likely to be a multiyear and iterative process at that.
In some instances, an owner will transfer the business to family members or sell the business to an existing management team. It may be that a company will be sold to a third party. Worse, an owner may be forced to wind-down and/or liquidate. Either way, this sort of business exit is unlikely to meet an owner’s financial, personal or legacy goals.
Maximizing transferable value is not done in a year or two. It’s done by way of a plan executed over 3 to 5 years.
Find an appropriate exit path
Choosing the appropriate exit path and exit timing will be a function of a business owner’s financial needs, personal goals and legacy desires. Regardless of timing and an owner’s chosen exit path, it’s critically important that the owner seek to maximize his or her company’s “transferable” value — the value of a business without the owner’s ongoing management, sales, financial, development and/or other participatory involvement.
Maximizing transferable value is not done in a year or two. It’s done by way of a plan and the execution of a plan that, at a minimum, is likely to be 3 to 5 years in duration.
Among other things, a successful exit plan requires an owner to:
- Assess key employees’ strengths, weaknesses and career aspirations
- Further train and develop key employees
- Perhaps recruit, hire and train additional employees
- Successfully incent and retain those members of the team that will lead the business into the future.
The best of plans, and the best of hires, don’t always work out as expected. It may well take a management iteration or two before that “next” management team gels and is working with the necessary cohesiveness and effectiveness.
Business know-how needs to be codified so that the business can endure and continue to grow without the owner’s involvement, or without the involvement of other key employees or managers.
Other critical issues that can affect ongoing success, and thus transferable value, can include: customer concentrations, supplier dependencies, outdated products, a lack of repeat customers or recurring revenues and unpredictable cash flow. Successfully addressing these issues may also take considerable time.
With respect to exit timing, industry and market factors may be favorable, but a business or a business owner may not be ready. Other times the business and owner may be ready, but market factors are less than favorable.
Creating transferable business value takes years and it’s best started sooner rather than later. It needs to be done in order for a business owner to create and ultimately realize the enterprise value that he or she has created in a business. And it must be done if a business is to continue to grow and prosper.
Todd Bachelder is a senior vice president and Maine market manager with Mascoma Bank, based in Portland. He can be reached at todd.bachelder@mascomabank.com
Most Recent
Most Recent
0 Comments