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The 8 Steps of Business Succession Planning

Jeff Denning Business Valuation Gilmore Jasion MahlerIt’s one of those issues that you may feel you don’t have time for because you’re too busy actually running your business. But it’s an important question you need to ask yourself. What are your plans for the business once you’re out of the picture? It’s surprising how few business owners actually know the answer. Statistics show that almost half of family businesses have absolutely no succession plan.

Gilmore Jasion Mahler and Croghan Colonial Bank recently teamed up to present a business succession planning workshop for area business owners. They offered some valuable takeaways including 8 steps to ensure a successful transition to new leadership.

First and foremost, be realistic about how long it will take to sell your business. Croghan’s Paul Wannemacher says the average time to sell a business once it’s listed for sale on the market is 6-11 months. He says one should also factor in 2-3 months to close once an agreement is reached.

“Make sure you’re ready when that prospective buyer does come along,” says Wannemacher. “Create a descriptive listing of the business as well as an overview. Just like when selling your house, you need to think about “curb appeal”. You may need to resurface the parking lot, freshen the landscape or painting to make it look more attractive to a potential buyer.”

Once you’ve tended to that first impression of your business and informed your key management, here are the 8 steps to succession planning:

  1. Get a handle on the marketplace. What’s the climate in your industry, the local economy and the national and international economies? Are there potential buyers out there?  Maybe your family members, managers within the company, maybe competitors?
  2. Pull together a team of advisors. This team should include your CPA, lawyer, wealth advisor and commercial banker.
  3. Get your business ready for transition
  • Review metrics
  • Make sure your records are accurate and up to date

It’s smart to anticipate some challenges along the way as you get your business ready for transition. Some of those challenges could include:

  • Normalizing your income statement
  • Cash flow/debt service history and capacity
  • The condition of your balance sheet
  • Collateral

Who is in the pool of potential buyers?

  1. Get a valuation

Gilmore Jasion Mahler CPA Jeff Denning is an expert in business valuation. He says the first question you need to ask yourself before getting a business valuation is: what are you offering to sell?

“Are you selling all of the transferable assets of your business or a fractional interest or equity share? What about your client and customer relationships? Your contracts? What about your workforce? We’re in the midst of a critical workforce shortage,” says Denning. “Many businesses are interested in acquiring other businesses right now to acquire their workers.”

Another challenge can be landing on an asking price for your business. Denning offers these questions to ask yourself:

  • Do you have a CFO or controller to assist in this process?
  • Do you have an outside CPA with valuation experience?
  • Do you need a business broker to help assess market potential or handle the entire sale process?
  • Do you need a real estate appraiser?
  • Grade your business against other comparable businesses
  • Is the business transferable? Owner-operated? How much risk of retaining customers?
  • Put yourself in the buyer’s shoes- your advisors should help with this perspective
  1. Create a personal financial plan: What amount of sale proceeds do you need to be satisfied? Look at your living expenses, vacations and spending you anticipate, family and charity goals. Don’t discount the emotional toll of finally leaving a business you’ve nurtured and built over the years.
  2. Prepare your family for the transition: The sooner you can let family members in the business know your plans the better. You may consider family wealth transfers through trusts or partnerships.
  3. Work with prospective buyers: Some things to keep in mind as you consider bids: how will loyal managers and employees be treated? Will the new owners continue with the company, improve it, or close it down?

“The buyer may want you to stay for a period of time after the sale. Just be very clear what that continuing role might be and how long will it last,” adds Croghan Bank’s Chris Kelly.Succession Planning Chris Kelly Paul Wannemacher Croghan

  1. Structure and close the sale

“Once you’ve identified a buyer, be aware that the final stretch can be as difficult as all the other steps that led you to this… and maybe more frustrating,” says Croghan’s Paul Wannemacher. “Will the business organization change? Will there be a reorganization? Are non-compete agreements needed?”

And, what type of financing is available?

  • Seller financing (you take on all the risk)
  • Conventional bank financing
  • SBA 7(a)
  • Collateral enhancement
  • Equity investors
  • ESOP

From assessing the marketplace to closing the sale, these eight steps are meant to be a guideline as you contemplate the future of the business you’ve worked so hard to build. While it may seem daunting, many financial experts agree that perhaps the worst thing you can do in regard to succession planning is to do nothing. If you and your financial team can come up with a strategy, you can rest assured that your exit will leave your business and your employees well positioned for future success.

Jeffrey S. Denning, CPA ABV, CFF is a partner with Gilmore Jasion Mahler, LTD. He has over 30 years of accounting experience, with a focus on providing services as an accredited business appraiser, forensic accountant, litigation consultant, and expert witness.

Chris Kelly is a Vice President and Commercial Loan Officer at Croghan Colonial Bank. He has over 20 years of experience in commercial banking, providing small to medium sized privately held businesses, nonprofits and professional firms with financial solutions.

Paul Wannemacher, CPA, PFS, CFP is a Vice President and Trust Officer at Croghan Trust & Investment Management. He has over 25 years of experience in trust administration, portfolio management, tax & financial planning and business consulting.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities