You’ve put a lot of sweat equity into your business, and you’re invested (both financially and emotionally) in seeing it succeed. But what happens when you want to step back a bit – or step down completely? What if the competitive landscape in your industry has changed and you must adapt? Are you up for the challenge at this point in your life? Do you want to give loyal employees the opportunity to take on these challenges – or start passing the torch on to the next generation of family members?

There are lots of reasons for a business to go through a transition. You could be looking to retire, scale down, start a new chapter, or get some cash to expand. You could be in conflict with your business partners, or facing a personal issue that needs more attention than you can give it in your current ownership role. Whatever your reason, putting some serious thought into what a transition could look like can help you help you determine the right solution.
Here are six things to think about as you plan:

1. What’s your goal for the business?

Are you looking to transition ownership to a family member, partner or employee – or create ownership opportunities for your management team? Do you want to keep leading the company, but need a partner with additional capital such as a private equity firm to take it to the next phase? Are you looking to get top dollar for the business right now and walk away, or keep some skin in the game to be part of additional growth opportunities? The answers to these questions will determine what kind of transition plan will work best for your company – and for you.

2. How much of a role will you want to play moving forward?

Are you stepping up, stepping back or stepping down? How much are you willing to sell, exactly? All? Most? Minority share? All of these options have trade-offs. Buyers and investors will often stipulate that you stay for a certain period of time to help with the transition – and for the sake of continuity and consistency. There are a number of reasons you might want to continue on in an active role: it’s still your passion, you want to mentor your team to eventually take over, or you want to see your legacy is maintained.

But you have options: do you want to continue leading the company, but bring on a partner who can share the risk and provide additional guidance? Alternatively, would a consultant, board member or Chairman role work better? Or are you willing to stick around for a year or two, then transition out sooner rather than later? The choice depends on your agreement with the buyer/investor. But it’s important to know you do have a choice; options for transitioning are on a spectrum, not an all-or-nothing deal. Look for a partner with the flexibility to accommodate your specific needs.

3. Is your management team (or family) ready for big change?

A successful sale or partnership with a private equity firm hinges on your company’s potential to succeed post-transition. Does your management team have that capability? Do they have a cohesive vision for the company’s future or do they have conflicting opinions? Or is there disharmony between family members, or perhaps family outside the business that might feel like they aren’t being treated fairly? These factors all impact the transition – and your attractiveness to a buyer or investor. Alternatively, selling to a strategic buyer (i.e. your competitor) takes away your ability to control what happens to the business and employees post–transaction.

4. What will happen to your employees?

How will the transition impact their job security – and their morale? Are there certain people you feel are critical to the operation? Do you want to protect employees who have served the company for decades? Whether you’re selling your business outright or bringing in an investment partner, there may be human capital decisions made in service to operational improvements. If you want to be part of those decisions, selling to a competitor may not give you that option. On the other hand, partnering with a private equity firm can give you more flexibility. Take the time to explore potential buyers/partners to find one that aligns with your goals and philosophy.

5. If you partner with a private equity firm, will the business succeed moving forward?

What’s the market like in your industry? Is it consolidating quickly? Is your company growing or standing still? How do you need to position your business to succeed in today’s marketplace? One of the benefits of partnering with a PE firm is that they can help you position your company for growth. They’ll help identify new markets, look at strategic acquisition opportunities, invest in marketing, streamline processes, bring on new customers, enhance your product and service lineup and more. Be careful here though; all private equity firms are not created equal. They all have different approaches to debt, level of operational involvement (i.e. how much control you/management have to run the business), appetites for ongoing investment, and other factors. Make sure you identify a partner that aligns with your vision – and check their references!

6. What are the tax implications of your transition?

Depending how the deal is structured, a business transition can have very different tax impacts for you, the business and its shareholders. Do your research to see what your options are: most private equity firms will seek to minimize your tax impact, but bringing on a CPA or tax attorney is a good bet for making informed decisions.

We talk to hundreds of founder/owners.

We know the reasons for transitioning are as unique as the people involved, and understand that your business isn’t just, well, business. It’s your legacy. It’s your identity. And it’s a living, breathing reminder of how hard you’ve worked and the success you have achieved. The last thing you want is someone to come in and take over without understanding its beating heart.

That’s why we do things differently at ORG: we dive deep into your industry and develop a close relationship with you to build a solid understanding of your specific needs and goals. Then we work with you to meet those goals, whether it’s enabling you to continue to invest in growth, diversify your personal portfolio a bit, or step back some so you can enjoy life.

Got you thinking?

Hoping to take your business to the next level – or take the next step towards retirement? Contact us at 512.320.4086 or to discuss the various options for achieving your goals.