Business Lifecycle

Managing through the business lifecycle: Transition

Plan beyond your involvement.

Published: June 02, 2009
Updated: February 15, 2017

Sooner or later, something changes in your relationship with your business, and it's time to start thinking about your endgame. Perhaps you have a new venture in mind and the proceeds from selling the old one will fund it. You might decide to "cash out" part of your equity, retaining a minority stake and perhaps staying involved in management decisions. Or maybe it's simply time to retire.

Whichever you choose, passing the baton to new leadership can be tricky. Not only are your life and your finances closely intertwined with what you've built, but there's an emotional investment as well.

It's important to start planning earlier than you might think — at least five years in advance. This helps to avoid the pitfalls of an unplanned transition, and to make sure that both your own wealth and the business' finances end up in the best possible condition.

Transition or succession?

Unless you plan to wind down the business entirely and close your doors, your exit strategy can take two basic forms:

1. Transition. Sell the business outright, either to an outside buyer, to your partners or employees.

2. Succession. Hand off the business to a successor from inside the company, either a family member or manager, whom you groom for the job.

Either way, you should plan on a full business valuation — either to maximize proceeds from a sale, or to prepare for sustainability and growth after you leave.

Transition FAQs

Q: When should I start planning for retirement?

A: It's never too early to start thinking about retirement. You can establish a retirement plan at any time. Talk to your banker to discuss which type of plan may be best for you and your business. Even if you're a sole proprietor you can still set up a Simplified Employee Pension Plan (SEP), a SIMPLE IRA, or a "Solo 401(k)" plan, any of which offers higher contribution limits than an individual IRA and may have potential tax benefits

Q: I've decided to sell my business. Now what?

A: First, decide whether you're going to sell your business to someone inside — such as an existing shareholder, senior management, co-owner, or employee — or someone on the outside such as a strategic buyer (owner of a related business, customer, or supplier).

Then, prepare your financials and resolve any legal issues to make your business attractive to buyers. Finally, several years before you get an appraisal, develop a solid management team and spruce up your facilities to increase the value of your business.

Several years before you get an appraisal, develop a solid management team and spruce up your facilities to increase the value of your business.

Action steps

  • Coordinate your wealth goals with your exit strategy. Think about your needs for your retirement, your family, and your community as you start to plan.

  • Gather an advisory team. Get everyone on the same page, and let them help coordinate and optimize your plan.

  • Conduct a self-assessment. Even if you're not planning to sell, a preliminary valuation of your business can help you enhance its value and stability.

What are my options?

How to prepare for a business transition:   

Your impact on the business could last long after you give up day-to-day control. The steps you take now can help ensure its continued success, or an orderly wind down as you move on to the next stage of life. According to the Baylor Institute for Family Business, business owners who approach succession planning in a formal, structured way with plenty of care, thoroughness, and time can enhance the value of the business, and help ensure the continuity of its success and its spirit. 

In retirement

Will your nest egg last?   

Many Americans have seen the value of their investments change dramatically over the past few years, but being proactive about your financial strategy can help ensure your nest egg lasts. "When you're in retirement, there may not be a lot more you can do to put money away, so you have to be sure to stay within your budget to make sure you'll make it through," says Michele Grant, SVP, Wells Fargo Advisors.

Many business owners choose to transition into retirement gradually, which also helps ease the strain on their savings. Before you expect to start spending your retirement funds, seek professional advice, starting with a comprehensive review of your investments. Then consider these factors to help preserve your savings in retirement*:

  • Create a retirement income plan. Because you may live for decades after you retire, having a well-defined income plan in retirement is just as important as the savings plan that helped get you there. Your retirement date, whether you continue to work part-time, and the retirement income you wish to live on are all important factors.

  • Rebalance your portfolio. For most people, retirement income is a balance between stability and growth. You want to manage risk but you also need to make sure the portion you don't spend keeps growing. The goal is to maximize the total amount of income your investments can generate throughout your entire retirement, without running out of money prematurely.

  • Consider long-term care insurance. As baby boomers enter retirement, Medicare will face increasing demands. Consider purchasing long-term care insurance, as well as supplemental insurance, to help make up the difference between actual costs and what Medicare covers.

  • Review and revise your plan. Economic conditions will change, and your needs are likely to as well. Every year, and whenever you experience the unexpected, take the initiative to make any necessary adjustments to your plan.


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