5 steps to take before transitioning your business

May 02, 2018

These crucial steps will help ensure your hard work lives on after you are ready to hand off your business.

It’s often been said that running your own business is a labor of love. It has to be. Why else would you work those long hours, take those risks and forgo a conventional career that might offer more security, even a better paycheck?

After years of hard work and dedication, you’ll inevitably get to the point where you need to transition your business. Though it can be challenging to let the business go, it should be viewed as a mark of success. After all, it means that you’ve grown your business to the point where it’s ready to be handed off and grow independently. This is a huge accomplishment!

Whether you’re ready to step down and move on to another venture or want to make sure a plan is in place should anything happen to you, it’s crucial to have a transitioning plan for your business in place. Today, we’re going to look at five crucial steps to take before transitioning your business to ensure your work lives on. 

 

1. Where are you and what are your reasons?

There are many reasons for deciding to transition your business, but to make a sound decision about what to do with your business, you should think in terms of goals. What did you hope to achieve when you started out on your entrepreneurial journey? Maybe it was to open three restaurants in your city or generate a certain amount of revenue each year or grow the value of your business to a certain amount of dollars.

Just because you achieved these goals doesn’t mean you should transition your business. However, the idea behind thinking in terms of goals is that they give an objective mile-marker for where you are in relation to your business. This can be a guide to help you decide whether you’re ready to move on.

There are also the non-business-related goals to consider. Perhaps you are ready to retire or feel that in order to grow the business, you must step aside. At some point, many entrepreneurs decide there is something else they want to achieve or to accomplish with their life. Maybe you have a bucket list of travel destinations or a hobby you wish to dedicate more time to?

 

2. Know what your business is worth

Before you begin the transitioning process, it’s important to have concrete data on what your business is worth. This might be harder than it sounds. To get an accurate assessment, approach your business like you would any other investment. Evaluate the potential risks, the areas for growth, cash flow and other aspects to arrive at an objective evaluation.

Many small business owners will have a large amount of their personal net worth tied up with their business. They also have a lot of emotional capital invested as well! Because of this, it might be wise to hire an outside consultant to give a more objective valuation.

 

3. How will you do it?

Did you develop a piece of technology a tech giant wants to purchase from you? Have you been grooming your son or daughter to take over for you? When it comes to transitioning your business, there are four main ways to do it:

  • Keep it in the family: Otherwise known as “giving your business away,” this is a popular option for people who wish to pass down their business to their children, other family members or even gift it to employees who will continue their legacy.
  • Employee buy-out: Some entrepreneurs don’t have family to transition the business to, or their family simply isn’t interested in the business. A popular option in this situation is to sell the business to the employees through an Employee Stock Ownership Program (ESOP) or other process. This has the advantage of keeping the business in familiar hands and increasing employee engagement.
  • Sell: In some cases, a buyer from a larger business will offer to buy your business outright. This happens in many industries, and it can be a huge cash boon for the business owner. However, as many small business owners know, it’s not all about money. When you sell out to another entity, the legacy you built may be at risk. The culture of your business may change and some jobs you created could be at risk.
  • Step away:  When you want to lessen your responsibilities but not step away entirely, you can opt to bring in a professional management team to take care of the day-to-day responsibilities while you still take in the economic benefits.

 

4. Consider working with a transition team

A lot of financial and legal details go into transitioning a business, not to mention emotions! Because of this, you’ll want to work with experts who will ensure you cross all the t’s, dot all the i’s and can help you get the most out of the transition. Depending on the nature of your transition and the size of your business, you may want to work with the following professionals:

  • Certified Financial Planner (CFP) 
  • Certified Public Accountant (CPA)
  • Business Lawyer
  • Business Broker
  • Business Consultant

 

5. Make the decision

This is the easiest and most difficult step to take. If you decide, after considering your initial goals with the business and where you are personally and in a business sense, that you’re ready to transition your business, set a date. A general time frame will be between nine and 12 months. Decide on a date and do what you’ve been doing for years: Work to make that goal come true.

 

Continue reading for tips on how to run a successful family business. 

Learn about U.S. Bank

Retirement quiz: How ready are you?

IRA vs. 401(k): What's the difference?

6 things to know about long-term care insurance cost and benefits

Military homeownership: Your guide to resources, financing and more

Is your employer long term disability insurance enough?

How much life insurance do I need?

Do I need a financial advisor?

How to plan and save for adoption and in vitro fertility treatment costs

Preparing for retirement: 8 steps to take

Car shopping: Buying versus leasing your next vehicle

For today's homebuyers, time and money are everything

How I did it: Bought a home without a 20 percent down payment

Money Moments: Tips for selling your home

Should you buy a house that’s still under construction?

What financial advice would you give your younger self?

10 ways to increase your home’s curb appeal

What you should know about buying a car

5 things to avoid that can devalue your home

9 simple ways to save

3 awkward situations Zelle can help avoid

Here’s how to create a budget for yourself

Money Moments: How to manage your finances after a divorce

Money Moments: 8 dos and don’ts for saving money in your 30s

Travel for less: Smart (not cheap) ways to spend less on your next trip

Understanding guardianship and power of attorney in banking

What’s in your emergency fund?

What you need to know about renting

From LLC to S-corp: Choosing a small business entity

6 tips for trust fund distribution to beneficiaries

How to build wealth at any age

How to manage your money: 7 tips to improve your finances

LGBTQ+ financial planning tips

Investment strategies by age

Should I itemize my taxes?

Your 5-step guide to financial planning

What is Medicare? Understanding your coverage options

5 financial goals for the new year

Retirement savings by age

Annual insurance policy review checklist

How I did it: Turned my side hustle into a full-time job

Retirement plan options for the self-employed

5 reasons why couples may have separate bank accounts

Common unexpected expenses and three ways to pay for them

It's possible: 7 tips for breaking the spending cycle

Closing on a house checklist for buyers

Multiple accounts can make it easier to follow a monthly budget

Is it time to get a shared bank account with your partner?

Don’t underestimate the importance of balancing your checking account

7 steps to keep your personal and business finances separate

Which is better: Combining bank accounts before marriage — or after?

30-day adulting challenge: Financial wellness tasks to complete in a month

Estate planning checklist: 8 steps to secure your legacy

8 steps to choosing a health insurance plan

Key milestone ages as you near and start retirement

Estate planning documents: Living trusts vs. will vs. living will

Why estate planning is important

How a Health Savings Account (HSA) can benefit your retirement plan

Year-end financial checklist

Finance or operating lease? Deciphering the legalese of equipment finance

Buying or leasing? Questions to ask before signing a contract

Insource or outsource? 10 considerations

The secret to successful service provider integration

How to improve your business network security

Safeguarding the payment experience through contactless

COVID-19 safety recommendations: Are you ready to reopen?

Unexpected cost savings may be hiding in your payment strategy

How to sell your business without emotions getting in the way

5 steps to take before transitioning your business

10 tips on how to run a successful family business

Talent acquisition 101: Building a small business dream team

Costs to consider when starting a business

How to test new business ideas

The costs of hiring a new employee

How to expand your business: Does a new location make sense?

How to build a content team

Multigenerational household financial planning strategies

How to track expenses

How to manage your finances when you're self-employed

Good debt vs. bad debt: Know the difference

Good money habits: 6 common money mistakes to avoid

7 beneficiary designation mistakes to avoid

Reviewing your beneficiaries: A 5-step guide

How to talk about money with your family

Financial steps to take after the death of a spouse

Retirement advice: How to retire happy

Social Security benefits questions and answers

Retirement income planning: 4 steps to take

Preparing for retirement: 8 steps to take

Comparing term vs. permanent life insurance

Working after retirement: Factors to consider

4 steps to finding a charity to support

Year end tax planning tips

A guide to tax diversification in investing

What Is a 401(k)?

Tips for navigating a medical hardship when you’re unable to work

11 essential things to do before baby comes

Checklist: 10 questions to ask your home inspector

Resources for managing financial matters after an unexpected death

What you need to know as the executor of an estate

What documents do you need after a loved one dies?

5 things to know before accepting a first job offer

How I did it: Paid off student loans

Bank Notes: College cost comparison

Webinar: U.S. Bank asks: Are you safe from fraud?

How you can prevent identity theft

Planning self-care moments that matter (and how to finance them)

Uncover the cost: Wedding

Uncover the cost: International trip

Tips to overcome three common savings hurdles

Adulting 101: How to make a budget plan

Personal loans first-timer's guide: 7 questions to ask

How can I help my student manage money?

Do you and your fiancé have compatible financial goals?

U.S. Bank asks: Transitioning out of college life? What’s next?

U.S. Bank asks: Do you know your finances?

Personal finance for teens can empower your child

How to save for a wedding

Dear Money Mentor: How do I set and track financial goals?

Lost job finance tips: What to do when you lose your job

Money Moments: 3 smart financial strategies when caring for aging parents

Money management guide to financial independence

7 financial questions to consider when changing jobs

How to stop living paycheck to paycheck post-pay increase

How grandparents can contribute to college funds instead of buying gifts

How to open and invest in a 529 plan

Using 529 plans for K-12 tuition

Parent checklist: Preparing for college

What to consider before taking out a student loan

How to use debt to build wealth

Crypto + Homebuying: Impacts on the real estate market

House Hacks: How buying an investment property worked as my first home

Your guide to breaking the rental cycle

4 ways to free up your budget (and your life) with a smaller home

Beyond the mortgage: Other costs for homeowners

10 questions to ask when hiring a contractor

Take the stress out of buying your teen a car

Questions to ask before buying a car

Disclosures

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, Home Equity and Credit products are offered through U.S. Bank National Association. Deposit products are offered through U.S. Bank National Association. Member FDIC.