Entrepreneur.
Small business owner.
Large family-owned entity.
Middle market companies or larger enterprises with complex ownership.
While the goals of these individual business owners and leaders may be nuanced and personalized, everyone wants to see their business create value and thrive for the long haul.
Having a team that holds the best interest of your business at the center is crucial to developing a long-term business plan. And that includes succession planning.
Business transition planning: Define your objectives
“Understanding the ownership objectives for the business right off the bat is key,” shared Mary Beth Coke, Regions market executive and Commercial Banking executive in Atlanta. “The subject of business transitions can be very personal for business owners and in many ways their future wealth is wrapped up in this one entity.”
Coke noted that if you don’t talk about an owner’s personal objectives, you are missing key components to understanding how best to provide advice for the business.
In a family-owned structure, it is important to know the objectives to appropriately structure the debt ahead of a transition. This is a key consideration to helping a company prepare financially for that succession.
April Grajales, Regions Commercial Banking leader
Understanding the long-term goals of the business will help set up a successful transition plan. Decisions around whether you intend to sell the business, transfer ownership to the next generation, or bring in new management may influence capital structures or how the business is organized from very early on.
“Understanding the long-term objectives is a critical part of the relationship,” said April Grajales, Regions Commercial Banking leader in Tampa, Florida, who works with business owners throughout West Florida. “In a family-owned structure, it is important to know the objectives to appropriately structure the debt ahead of a transition. This is a key consideration to helping a company prepare financially for that succession.”
Business transition planning: What is the endgame?
Business transition planning is a critical, yet often overlooked, aspect of business ownership and management. As an owner or leader, preparing for the future of your company isn’t just about the daily operations; it’s also about ensuring its longevity and stability into the future.
“Planning and preparation are key to ensuring a successful business transition, whether that is in two years or ten,” said Grajales.
Grajales shared a few considerations for family-owned businesses as they prepare their succession plan.
- Maximize the value by clearly outlining and understanding business versus personal expenses, you will be in a better position to negotiate and maximize value of the business. It could also assist in understanding what value you need to support personal lifestyle post transition.
- Transparency and open communication between family members is imperative. Utilizing specialized consultants to help analyze the nuanced strengths and passions of family members and/or key leaders within the business related to creating a transition plan.
- Evaluate your current capital structure for any impediments to a future buyer. Consider a business valuation to think about the business value compared to their assets. And think about what assets are underlying support the current debt structure? Should you consider paying down debt to be sure you can sell and make money.
- Change management is key for employees to feel heard during a transition process. Communicating with internal audiences and involving key employees in the discussions and planning process in imperative for success.
“It’s important to remember the plan should remain fluid,” said Grajales. “Sometimes the ‘why’ or the objectives of that business can change.”
Business Transition Planning: Where do you see yourself five years from now?
When thinking about the long-term future of your business, Regions’ Commercial Banking team often starts their conversations with this question.
“The answer to this one question can provide a lot of information – and the answers vary widely and may differ by generation,” said Coke. “This is a fundamental part of understanding the business and the business owner’s goals whether they are nearing retirement or have just recently taken over ownership.”
Business transition planning: Building your team
Whether considering resources of support available inside or outside the business, building a strong team is imperative.
“Accessibility to a third party or team of advisors that can come in and brainstorm around strategy, focus and purpose is widely available,” said Coke. “This can be an inexpensive way to get the thoughts out and create a framework while removing some of the emotional influences around a family-owned business.”
It is not uncommon for business owners to put off thinking about business transitions as they focus on growing the business or managing the day-to-day operations. But it is important to have these conversations early and often with whatever team of trusted advisors you have assembled.
“I encourage younger business owners to think about using tools and experts that are available around what they want to do and what the future may look like,” said Coke. “Banking, accounting, advisor, wealth advisors and a variety of consultants. You’ll see a better outcome in the long run if you use these resources.”
Banking, accounting, advisor, wealth advisors and a variety of consultants. You’ll see a better outcome in the long run if you use these resources.
Mary Beth Coke, Regions market executive and Commercial Banking executive
Bringing these resources in well ahead of a business transition ensure that this team knows and understands the goals of both the business and the business owner. This understanding may help maximize value of the business ahead of any planned transitions.
“When a team is involved and can grow with the business and its owners through the evolution and life cycle, it is easier to prepare for the future of the business as the time for transition approaches,” said Coke. “From small businesses growing into middle market companies growing into corporate businesses. There is a benefit to having the same team supporting the company, growing the relationship as the business grows.”
This information is general in nature and is not intended to be legal, tax, or financial advice. Regions makes no representation as to the accuracy, completeness, timeliness, suitability or validity of any information presented and Regions does not accept liability for any direct or indirect loss stemming from the application of any material. Information provided and statements made by employees of Regions should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. Regions encourages you to consult an appropriate professional concerning your specific situation and irs.gov for current tax rules.