Financial Planning


Succession planning tips for business owners

Without careful succession planning on how to transition ownership in your business, you could fall short of your personal and professional goals.

“It’s not unusual for the owner of a closely held businesses to have much of their wealth invested in their business,” says Rod Dolan, National Director of Business Owner Advisory Services (BOAS) at U.S. Bank. With closely held businesses, where a few individuals own shares of stock, a business owners’ wealth is concentrated in an illiquid entity.

Maybe you hope to:

  • Spend your retirement years with your spouse
  • Help your children buy their first homes
  • Send your grandkids to college
  • Make a difference through charitable giving

Achieving any of these goals requires taking stock of your personal and professional assets, then designing a plan to maximize both. Business succession planning can ultimately help you tap the wealth locked in your business. A comprehensive wealth management plan will provide an overview of your lifestyle and cash flow needs. BOAS can be your strategic partners in the process.

Business transition planning can ultimately help you unlock the wealth embedded in your business. And BOAS can be your strategic partner in the process.

Finding a partner at the start of your business succession planning

“When you’re considering a transition for your business, it’s important to obtain unbiased advice, but finding that can be a challenge,” Dolan says.

BOAS provides objective advice to business owners on ways to maximize business profitability and evaluate transition and succession options. The team consists of senior-level individuals who have run their own businesses or held high-level corporate executive positions and have investment banking experience. They understand the complexities of buying and selling businesses, raising capital, and preparing a company for a transition.

A few of the issues Dolan and his team of business advisors help clients work through include the following:

How to increase the potential value of your business

Like your home and your investment portfolio, your business is an asset. To monetize it with a sale to an outside buyer — now or later — you first must understand what makes it valuable.

“What are your business’s strengths and weaknesses? What are the worries that keep you up at night? What are your biggest opportunities, and do you have the right capital structure to be able to pursue those opportunities?” Dolan says.

Enhancing your asset’s value might include building a stronger management team, diversifying your customer and supplier base, or sharpening your competitive advantage.

“Maybe you’ve got a good business, but you’d like to take it from $20 million to $40 million [in value] before you sell it,” he adds. “We can advise or assist you with strategies to help grow your business.”

How to decide what you want to happen to your business

One of the most important questions facing every closely held business owner isn’t how to lead the business but how to leave it.

“You want to make sure it goes into the right hands down the road,” Dolan says. Which hands are the “right hands” depends on your individual goals, according to Greg Andrews, Managing Director of BOAS. He says business owners may want to consider:

  • Finding a new owner with a similar philosophy who will preserve what you’ve built
  • Creating a business legacy as opposed to simply taking the highest offer
  • Staying involved in the business for a period of time

If you have children or relatives interested in the business, you can transfer it to them. If you decide against that option, you may want to sell your stake to senior managers or leave the company to your employees through an employee stock ownership plan. You could also sell to an outside buyer or even gift all or part of the company to charity.

How to respond to unsolicited inquiries about selling your business

In a perfect world, business succession follows a plan. In an imperfect world, closely held business owners receive unsolicited offers from potential buyers, whose interest could complicate succession plans. Evaluating offers objectively will serve your interests and those of the business.

“Let’s say you receive an enticing offer — one of the things we can help you determine is if it may be the right time to sell,” Dolan says. “Maybe you’ve just opened a new factory or started a new sales initiative. Businesses are typically sold as a multiple of earnings, so if those investments are going to dramatically increase the earnings of the business over time, it might be better to wait a year or two before selling a business.

“On the flip side, if your business has done extremely well but there’s new competition in the space and you’re at risk of losing customers, now may be the best time to sell because you’re probably looking at flat or negative earnings growth,” he says.

How to know if you have enough liquidity to achieve financial objectives

The financial future of a business owner hinges not only on the ability to exit the business but also on the ability to grow it before leaving. According to Andrews, that requires liquidity.

“Ideally, you’d like your capital structure to provide the maximum amount of financial flexibility,” Andrews says. “That means a capital structure that provides liquidity — availability under bank lines of credit, for example. That flexibility is essential, because you may see a compelling acquisition or opportunity to expand geographically or with a new product line. If you don’t have the funds, it’s a missed opportunity.”

Transitioning a business that you nurtured, grew and lived with for decades can be a difficult process, emotionally and procedurally. Consider assistance from Business Owner Advisory Services to guide you through the transition process.

Business Owner Advisory Services are not fiduciary in nature. U.S. Bank and U.S. Bancorp Investments serve in a non-fiduciary role when providing these services.
Business Owner Advisory Services are provided for educational and illustrative purposes only, and do not guarantee the success of any strategy or recommendation.