Over the next 10-15 years many baby-boomer business owners will need to decide, How will I transition out of my business? In my previous blog “Strategies for an Effective Business Exit“, I introduced the elements of a Business Transition Process that can help achieve a sustainable succession structure and a financially rewarding exit. This blog will delve into the initial key element of this Process – Situation Assessment.
Situation Assessment
I’ve interviewed hundreds of business people. They told me that the hardest part to this transition is getting started on a plan.
The best place for business owners to start is to critically assess their current resources. This assessment of personal, financial and corporate health, plus change readiness can be broken down into the following:
- Detailing Key Advisory Resources
- Completing a Personal Financial Review
- Conducting a Business Diagnostics Scan
- Initiating a Change Readiness Review
Key Advisory Resources
First, compile a list of your key business advisors, both internal and external, and inform them that you intend to start the journey of transitioning out of your business. This list will include your accountant, banker, lawyer, management consultants and trusted personal advisers. This will allow informed advisors to play a role in formulating and executing the plan moving forward.
Personal Financial Review
Since most business owners have increased their personal net worth as the company has grown, meeting with a personal financial advisor and accountant is needed. Areas to focus on include: developing a personal financial statement (assets, liabilities, income, taxes, etc.), creating a snapshot of investment portfolio performance and asset diversity; a comprehensive insurance review; a review of the company’s shareholders; determining family needs and preferences; and an assessment of the capacity and interest of future generations in assuming ownership.
Services of an experienced tax lawyer and/or accountant may be necessary to fully scope out and comprehend all legal and fiduciary issues.
Business Diagnostic Scan
Before deciding which business transition strategy is best for you, undertake a scan of your business, including the external environment and the industry conditions. The Business Diagnostic Framework graphic presented below (developed for our book Business Diagnostics), is a systematic approach to diagnose the current health of your business. This is a critical piece of business planning that is often overlooked or under appreciated.
The Business Diagnostic process evolves from the outside concentric circles, assessing first the external environment (described as a PEST-C analysis) and then drilling down into the key internal functional areas of the business operations: human resources; operations; marketing; technology; and, finance. It is critical to conduct an external scan that considers all the factors that could impact your business before evaluating internal conditions and developing a strategic transition plan.
Initiate a Change Readiness Review
Once all other reviews are complete, the final component is understanding and assessing the appetite for significant change and transformation within the organization. To evaluate this, you again need to look externally and internally.
The external focus is on the market place requirements, business imperatives and organizational initiatives. Questions to consider include, What impact will the transition have on customers? What needs to be done to meet customer needs? Does ownership have a enduring relationship with clients which may be affected after the transition? and, What other organizational challenges may take place post transition?
Internally, it is important to denote cultural requirements are needed and what changes must be made to support a new design, strategy and operations as a result of the business transition. As well, new leaders and existing employees may have to behave differently to adapt as the organization works to re-cast culture and design success for the future.
Next Blog- Transition Pathways and Selection
In my next blog I will outline the second key element of the Business Transition Process – Transition Pathways and Selection.
Mike Thompson
Mike Thompson is a Fellow, Certified Management Consultants (FCMC), Associate Faculty at Royal Roads University and co-author of Business Diagnostics, a business book providing a simple methodology to size up a business.
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