4 Steps When Thinking About An Internal Business Transition

By Brian Slipka-CEO of Sunbelt Business Advisors of Minnesota

Click here to read the original article published by Forbes

One of the biggest decisions that business owners eventually face is how they will handle transitioning out of their life’s work. There are several good options, and one—an internal transition—is particularly popular. It’s understandable.

Recently, the Minnesota-based Exit Planning Institute released a report on business owner readiness to exit. (Full disclosure: One of our portfolio companies was a financial sponsor for this report.) While this report relies on survey responses gathered from only Minnesota business owners, I believe its implications and lessons can be applied universally, particularly on the topic of internal transitions.

The report notes that 57% of business owners want to sell internally; however, many of them lack a proper plan.

Business owners who are contemplating an internal transition must understand how to avoid mistakes throughout the process so they can transition confidently and comfortably to the next phase of their lives.

Here are four important steps to take when considering an internal transition exit strategy, based on the Exit Planning Institute report.

1. Get Started Early

Exiting a company is a complex process. It is never too early to start planning for it. Yet, some business owners have given little or no thought to their exit plans and are therefore unwittingly disadvantaging themselves. Developing a timeline with realistic expectations years ahead of time ensures a successful and efficient transition.

2. Establish A Formal Transition Team

A shocking 50% of owners have no type of transition team in place. A business cannot undergo an internal transition through the actions of one individual. It takes a dedicated team of trusted advisors, respected colleagues and experienced employees to move through the process competently. This allows the owner to continue running the business while the transition team handles exit-preparation activities behind the scenes, smoothing the process.

Transition team responsibilities may include addressing issues revolving around owner-centricity, team dynamics, customer base and regulatory compliance.

Significant concerns surrounding an internal transition, which are valid in any transition:

• Leadership: Will a successor maintain the reputation, culture and relationships created during the previous owner’s time in charge?

• Personnel: Will key employees stay around long enough to support a successful transition?

• Customers: Will regular customers react favorably to a change of leadership?

• Regulations: Will regulations at the local, state or national levels affect the transition?

3. Seek Professional Advice

The underutilization of professional counsel is quite common among owners who are thinking about exiting their businesses. Yet, business advisement professionals can play an important role in determining the value of businesses and ensuring that business founders reap the greatest benefit from their life’s work upon exiting. Business advisors can help navigate the complexities of selling, and they can market the business to highly qualified potential buyers.

Business owners might assume the exit process will be easier or less formal in an internal transition. This would be a mistake. Indeed, in an internal sale scenario, outside advisement services are almost more important than in an external sale since they can bring a professional, third-party expectation of formality and rigor to a transaction.

4. Plan For Life After Owning A Business

Ultimately, business owners could have the perfect exit strategies in place, but does that mean they are truly ready to be done? Business founders pour their lives into their businesses. It can be difficult to leave an enterprise that one has created, nurtured and expanded, particularly in an internal transition scenario where the former owner is familiar with (or even family with) the new owner.

Life beyond business ownership can be an adjustment, which is why owners must be sure they are ready. Whether it’s investing in or buying another business, becoming a consultant, engaging in philanthropy, retiring or something else, business owners must take time to reflect on their personal goals, future identities and long-term legacies before committing to an exit process.

The Good News

The good news from the Exit Planning Institute report: Since 2017, there has been a 26% increase in exit option awareness. Being aware of exit options is a critical precursor to having an interest and desire ultimately to take action toward establishing an exit plan.

By getting started early, establishing a formal transition team, seeking professional advice and planning for life after the transition, business owners can set themselves and their businesses on a path to post-transition success.

About Sunbelt Business Advisors of Minnesota

The Sunbelt Business Advisors Minneapolis office is the largest office in the Sunbelt network with a staff of over 50 advisors, associates, analysts, and business development representatives. In 2021 the firm was recognized by the International Business Brokers Association as the #1 firm in the country and the first firm in history to sweep all three first-in class awards. Sunbelt provides services to business owners interested in selling their businesses, assistance with merger and acquisition activities, complimentary business value assessments, and advice to business owners seeking to maximize their life’s work when they exit. The firm provides business brokerage and mergers & acquisitions services for companies with revenues from $500,000 to $150 million. More information is available at www.sunbeltmidwest.com (<Under $5 million revenue) and www.tnma.com ($5 – $150 million in revenue).