So, you’re thinking about transitioning your business. Maybe you’re looking to retire, take a step back, or move on to something new. Whatever the reason, transitioning your business is a big decision—one that shouldn’t be taken lightly. After all, your business is your life investment. You’ve spent years (maybe even decades) building it up from the ground up. But don’t worry, we’re here to help.
Four steps for successfully transitioning your business:
Step 1: Find Your Golden Number
The first step in successfully transitioning your business is finding your “golden number.” This is the amount of money you need to become financially independent without your business. To calculate this, you’ll need to add up all of your current expenses—including things like mortgage payments, insurance premiums, and retirement savings contributions—and subtract any income you currently receive from sources outside of your business. Once you have this number, you can start working towards saving it so that you can one day transition out of your business without worrying about money.
Step 2: Maximize Business Value
The second step in successfully transitioning your business is maximizing its value. There are a few different ways to do this, but some key things to keep in mind are hiring next-level management and key employees, implementing systems that increase cash flow sustainability, having a diversified customer base and proven growth strategy, and generating recurring revenue that is resistant to commoditization. By taking steps to increase the value of your business now, you’ll make it much easier to sell (or hand off) later down the road.
Step 3: Determine Your Successor
The third step in successfully transitioning your business is determining who will take over once you’re gone. This person could be a family member, a close friend, or even a current employee. Whoever it is, it’s important that they are someone you trust and feel confident will be able to keep the business running smoothly in your absence. Remember, this person needs to want to do this, they can’t be forced into this position and need to be paid top-dollar for it.
Step 4: Plan for the Unexpected
Finally, the fourth and last step in successful business transition planning is preparing for the unexpected. Things like death or disability can happen at any time and can throw even the best-laid plans into disarray. That’s why it’s important to have contingency plans in place for these types of situations. This might include creating instructions for how to keep the business running in your absence or updating (or creating) an estate plan that outlines what will happen to the business if you die or become incapacitated. By anticipating potential roadblocks ahead of time, you can help ensure that your transition goes as smoothly as possible—no matter what life throws your way.
Transitioning your business is a big decision—but it doesn’t have to be a stressful one. By following these four simple steps—finding your golden number; maximizing business value; determining your successor; and planning for the unexpected—you can set yourself (and your business) up for success. So what are you waiting for? Give us a call and let us help you get started on your transition plan today!
