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    How to Create a Transferable Family Business

    Seven concepts will put you on path to protecting value.

    By James J. Kirlin, Private Capital Solutions Group

    My column in the September issue of Convenience Store News, “Golden Goose or Black Swan?” presented the observation that many family-business owners are not adequately prepared to transfer their business. The article addressed several reasons why business transition planning is important for business owners who want to safeguard the future value of their enterprise.

    This month’s column follows up on the “why you need a business transfer plan” discussion by posing a new question: How do you create an effective business transfer plan?

    Below, I outline seven concepts. These “how to” steps can bolster the long-term transferability of your business. Although challenging, they will hopefully inspire you to take the necessary measures to ensure your business will be transferable for the value you expect.

    Concept 1: Think About the Big Picture

    Standing still in today’s business environment is not an option. At any time, unknown forces in the economy and your industry can put your business and wealth at risk. By taking the time to define your vision for both the company and yourself, you will have the foundation for meeting those threats. Without this, it is likely that you could remain trapped in your business, or not receive the value you expect when you exit.

    Whether you decide to keep or sell, what actions and decisions are you making today that: make you and the business ready for the future; protect owner value; and increase the likelihood of a successful transition to a new owner?

    Concept 2: Immediately Begin the Planning Process

    It is critical to commit to an assessment and review planning process. Take a fresh look at your current strategic corporate and personal planning to uncover the threats, and also identify the opportunities that can make your vision a reality.

    There are four steps in this process:

    1. Review your personal and business goals and objectives.

    2. Determine your financial and mental readiness. (A personalized and confidential report that measures readiness is available at http://berireport.com/Survey/Register/91A6A461_8148.)

    3. Explore and understand your transfer options. The alternatives include internal transfers (family, key executives, shareholders, etc.), external (outright sale), and strategies for unexpected events such as death or disability. Each are tied to a different value strategy.

    4. Review your financial, estate and wealth/investment plan. You should ensure that this is aligned with your transition plan and family wealth plan.

    Concept 3: Determine Valuation Strategies

    How much money will you need when you exit? With a majority of your wealth trapped in an illiquid business, how will you get your equity out if needed? You may discover the business may not be transferable for the value expected during lifetime or death. Understanding the value of your business and how it fits into your financial and estate planning is critical.

    Do you know what your business is really worth? You may know an approximate value, but it can be misleading. Actual value will depend upon the transfer method you choose to accomplish your business and personal goals.

    There are a number of valuation options available. They are directly affected by the purpose of the valuation, the transfer method available (i.e., employees, sale, shareholders, family), and/or type of buyer (strategic or financial).

    Concept 4: Explore Industry Activity & Trends

    Evaluate the trends in your market to determine what future owners value in a company they may buy. Assess competitive position and comparable values within the industry; who may be available as a future owner; and consolidation trends. Gathering industry intelligence will contribute to your preparation for making decisions when the opportunities appear.  

    Concept 5: Measure & Manage Your Company’s Owner Dependence

    The value you receive for your business often depends on how much control you want to maintain. Reducing the level of the your company’s dependency on you likely increases the value. For example, if you want to keep some control through a sale to executives or shareholders, then you are likely to receive a lower value than you would with a sale to an external buyer.

    Concept 6: Attract, Keep & Retain Executive Talent

    Talented executive managers are a value driver for your company. Determine where your key executives rank in terms of skill and ability to operate the business. Make sure you have the best people in place to help the business grow. Then, provide incentive-based compensation programs that align the executives with the company’s goals and succession plan. Do not rely on salary and bonuses alone to keep them.

    Concept 7: Leadership, Communication & Collaboration

    Don’t go it alone. How often do you gather an advisor team together to review and make sure all of your planning is on track to accomplish your goals? Conversations with your advisors, family and the executive team about your objectives are essential. Take time to learn about their expectations and concerns. Explore goals for the business and key strategic issues, including contingency plans for unexpected events such as death or disability.

    Also, you may want to consider working with an independent advisor who specializes in business transition planning. They have the experience to provide leadership and “quarterback” the process, in collaboration with you and your advisor team.  

    Ultimately, when it comes to transferring a business, there are no easy answers. Every situation is different. I hope this column helped create a pathway for understanding what you can do to make your business more transferable in the future.

    Editor’s note: The opinions expressed in this article are the author’s and do not necessarily reflect the views of Convenience Store News.

    By James J. Kirlin, Private Capital Solutions Group
    • About James J. Kirlin James J. Kirlin is a financial advisor for family and privately held businesses. He has more than 25 years of experience in executing business transition and legacy planning strategies that focus on optimizing family wealth and reducing the risks associated with the ownership of a middle-market business. He advises business owners on a wide range of topics including exit strategies, succession, legacy and wealth management planning.

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