Selling or transitioning a business is hard. To successfully achieve such a feat, business owners must plan accordingly and start openly communicating early on with family members and others who will be impacted by the sale. This will not only make the transition process easier, but it can also help owners thrive as they embark on their next adventure, according to advisors at The Colony Group.
On Wednesday, Worth launched its newest live online series, Worth Book Club, debuting with The Colony Group to celebrate the release of their advisors’ new book, Your Next Adventure: Planning for Life After the Sale of Your Business. Worth CEO Juliet Scott-Croxford was joined by authors Marshall Rowe, Jim Fitts and John Weeks for an intimate discussion focused on the process of transitioning the ownership and management of a family or closely-held business.
“Colony’s mission is to give our clients peace of mind so they can find joy and meaning in their lives, and when you have something as important as a family-owned business that you transition out of, if it doesn’t go well, it’s the opposite of peace of mind,” Fitts explained. “When you don’t plan properly, you don’t anticipate what kind of things can happen to you and your family, then I won’t say your world can fall apart, but you’ve got some real rocky roads ahead of you. So, while our experience is certainly available to our clients, our mission in writing this book was to share it more broadly with business owners across the country, so they would have greater odds of success when they transition the business.”
According to the authors, who not only interviewed other advisors but also business owners and their families ahead of writing their book, they advise starting to plan five years ahead of a transition.
“Starting early is certainly important. There’s really five personal elements which are impacted by the sale of a business including the social structure of their life, their family relationships, their intellectual framework, their health and fitness and, of course, their financial life,” Rowe said. “So, we try and address each of those elements in the book and provided some useful ideas and approaches that business owners can utilize to think about their own circumstances and what will be successful for them.”
One important framework discussed in the book is “the three clocks.” In order to have a productive sale of a business, the industry clock, the business clock, and the personal and family clock must align at the same time.
“The concept of three clocks really tries to look at the broad picture that a business owner is facing, and the premise is that for an ideal transition, you want all three clocks to be aligned,” Rowe explained. “The first clock is the industry clock, meaning that an ideal time to transition or sell a business is when your industry’s economics are strong, there’s good growth in the industry, in particular, there are high multiples being paid for a business in the industry, that’s an ideal time to think about selling or transitioning your business. So, that’s the first clock. The second clock is the business itself, meaning that is the business ready to be sold? Do you have a good management team in place? Do you have good margins? Has your growth rate been persistently good? Do you have a diverse customer mix or client mix? Or do you have an over concentration of risk? Think about getting your business ready to be sold and making sure that your financials are in good shape and that you have audited financials. It’s the preparation of the business and making sure that it’s running well, and your management team is in place, so that you have a good asset that you’re essentially putting up for sale. The third clock is the one that we primarily focus on in the book and that’s you, the business owner and your family.”
“Probably the single most prevalent reason why transactions don’t take place, or why they fail at the 11th hour, is that the family is not ready for the transaction,” Rowe continued. “And that comes back to why we wrote the book. We’re trying to make sure that the family is ready and prepared for the transaction, so that the family clock can align with the business clock and the industry clock—and that really leads to a successful transaction.”
In addition to clock alignment, another vital part of planning for transition is making sure you have the right “deal team” in place. While most successful business owners already have a solid team of advisors, when you start talking about transitioning the ownership of a business there are additional needs and expertise that the owner should make sure are represented.
Of course, the actual sale of the business is only part of the equation. Equally important is preparing for post-transition life, as owners are essentially pivoting from managing an operational company to a financial company.
“As [business owners and their spouses or partners] start to think about what the next adventure might look like, the communication becomes even more important, more critical to the success of it, because you sell your business and you now come home, you have free time, how are you going to fill that time? You’re seeing somebody maybe a lot more than you’ve ever seen them before, so, to not have worked on those things and talked about those things, as a buildup, as preparation for the ownership transition, really creates a lot of risk in an area that you absolutely don’t want to fail at,” Weeks said, “because part of this fulfilling next adventure is that you have that time to spend with family, to do some things philanthropically perhaps, to reconnect with your community. But your spouse, again, has likely played a significant role for you during the business ownership time and so, needs to prepare for and go through the transition side-by-side with a lot of communication going on, and you both come out the other side ready to take it on, ready to thrive in that next adventure.”
“Business owners have a lot of passion, and that’s why they’re entrepreneurial,” Rowe added. They have great energy and belief and passion, and that needs to find a new destination. Those destinations vary, and they’re not always obvious. Some business owners think that they’re going to have the chance to play golf or to sail or do whatever they might want to do that they’ve always wished they had a little more time to do. But in truth, what business owners really need to look for, and hopefully find, is something substantive that will capture not only their time and their energy but also their hearts. When you sell a business, you lose a lot of your social connections, and rebuilding that social structure is going to be extremely valuable and helpful to making you feel like you have a fulfilled life after the sale of a business.”
Whether its mentoring, coaching or sitting on the board of a nonprofit, hands-on engagement can be key to finding success post-transition. It can also be critical to building a long-lasting legacy.
“We all have a legacy, and we’re all going to leave a legacy, whether we want to or not,” Fitts said. “It’s a question of whether we want to take control of that legacy and how we want to be remembered.”
“After transitioning their business, entrepreneurs have the opportunity to retool their passions and energies toward new goals that influence more people across a broader scope of time,” the authors write toward the end of the book. “The sale of the business is not the end but, in fact, a beginning.”
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