Most business owners are familiar with the idea of exit planning, but if a departing CEO truly wants to ensure the best outcome when selling a business, developing an effective entry plan commonly known as a “Transition Plan”, with the new owner-operator in mind is vital. By preparing his business and the eventual buyer for the transition, an owner can paint an attractive picture of his business, not only helping to obtain fair value in a sale, but also leave it in new hands with peace of mind.
A comprehensive transition plan should outline how a business can achieve three key things before, during and after the deal process:
Consistency in the business
An effective transition plan details how a company will continue business-as-usual during deal negotiations, the due diligence period, and the first 100 days post-sale — particularly if the CEO plays an integral part in the day-to-day business operations.
If a potential buyer suspects that a significant amount of the value of the business is tied to the owner or departing senior management, it could turn them off from the deal. Or, if performance slips during the due diligence period, the eventual sale price could be impacted negatively. Creating a plan for unfettered service will keep existing customers happy, preventing them from fleeing to a competitor. In this way, an effective transition plan aims to prove how revenues can maintain (or grow) post-close.
Confidence amongst employees
Focusing on what will happen within the company upon the arrival of the new owner will go a long way in supporting employee morale. Knowing what the transition will look like allows a CEO to confidently tell his staff what to expect and how best to prepare for the event.
Clarifying the future of the business to its employees can produce great results, as employee uncertainty is one the greatest risks associated with selling a business. Failure to mitigate this uncertainty can spur dissatisfaction and ultimately turnover.
Many of the answers to employees’ questions will be related to the type of buyer: Will anyone be let go? How will HR policies change? Will salaries be impacted? Although there is always an element of uncertainty in a transaction, working through all of these possibilities, discussing them with the incoming owner, and setting expectations within the company can help mitigate some of the biggest employee concerns.
A protected legacy
Owners of small and mid-sized businesses often carry significant weight in their communities. Local or regional businesses likely employ friends or neighbors and are seen as providing a vital service to the surrounding community. In the case of family-owned businesses, these companies may also carry an owner’s name and the sale of such a business may not only have financial but emotional impact on family and relatives. For all of these reasons, a departing business owner is often not only thinking about the physical entity he will leave behind but also the reputation he’s built throughout years growing the business and what will become of his legacy.
While applying a plan to one’s legacy may seem an amorphous task, the transition process is a perfect time for an owner to codify the foundation upon which the business was built, communicating to employees, senior management and the new owner this vision and preferences for its continuation. This may include articulating the cultural standards the business upholds, its mission or customer promise, and the values by which the company operates on a day-to-day basis.
Not only does accounting for one’s legacy in an transition plan help a business owner feel more mentally prepared for an exit, but it also helps prepare the business and its employees and customers for the changeover. Furthermore, by outlining the potential pain points a new owner might experience as he transitions into the business and considers new hires, operational changes and growth strategies a CEO can mitigate any uncertainties the buyer has about how his departure will affect the business.
There are many things a CEO has to consider personally when he is exiting the business, from the price he receives for the sale and how this will affect his retirement plan to what he will do as a “second act” now that he is not running the business day-to-day. But planning for the continuity of his business post-departure can not only help ease the transition process, it can also help a business owner command top dollar and create a competitive sale process as buyers want to ensure a business can continue to perform and grow after they have closed the deal.
