The king is dead... long live the king?!
7 november 2022 By Michel for Private Banking 1859
When should you start this process? What options do you have? What are your resources? What is the key to a successful transfer? Who should you hand over to? What are the mistakes to avoid? Read on for clear answers to these questions.
A “plan-ahead” process
A business transfer involves more than choosing the buyers and signing a few papers; it is a process that extends over several years and includes, beyond the fiscal aspects, human, logistical, ethical—and many others—perspectives. Therefore, you should start planning several years before the date you actually plan on retiring completely.
According to Stéphane Bourgeois, you should even start as soon as the business is created: you should always be prepared in case circumstances beyond your control force you to sell your business quickly.
Different types of transfers
There are several options on the table: internal, family or external transfer. These are not mutually exclusive, as more often than not, a group of individuals will take over of the company rather than a single person.
The most important factor in choosing the type of transfer is identifying what matters the most to you: is it the sell price, or your company upholding its identity and values? In the former case, you may choose to sell externally, while in the latter, selling internally or within the family may be the best choice.
For example let’s say you own a fresh pasta restaurant with an estimated value of $1 million. Would you rather sell it for $900,000 to your child who wants to preserve its identity, or for more than $1 million to an Italian restaurant chain that plans to integrate it into its own banner?
You won’t necessarily have to make such a drastic choice, but identifying your priorities and, if possible, determining how much they’re worth will make it easier for you to know who you want to pass on your business to.
Guidance and support
Luis and Stéphane are clear: in order to carry out the transfer properly, you need the help of specialists—not only tax specialists or lawyers, but also transfer experts, coaches and guides.
Luis says: “When entrepreneurs are reluctant to get the proper guidance, I ask them what transformations they have invested the most money into in the past. For example, they may tell me about changing the enterprise resource planning (ERP) system. I then ask them how much it cost. A lot, of course! So, they understand that in order to succeed in the biggest change imaginable—that of the head of the company—it is fundamental to invest and surround yourself with a team of specialists.”
The heart of a successful transfer
“Preparing people and managing emotions,” Stephane tells, “is the heart of a transfer.” He continues: “I had a case where the seller considered that he needed such and such an amount of money in order to be able to live his retirement as he wanted. So, he planned to stay in the business for another three to four years in order to have the required capital to retire after the sale. However, there was one hitch he had not seen coming that made the transfer impossible: his wife told him that she would not wait more than one year for the transfer; otherwise she would leave him! We had no choice then but to address the personal aspects associated with the sale. These discussions allowed us to create a more inclusive and satisfying game plan for everyone involved.”
The takeaway from this story is that a business transfer does not only involve those who sign the papers, but also several other individuals with whom your relationship is not only professional, but also personal and emotional. So, include them from the start: it will save you a lot of trouble.
Whom to transfer to?
Luis shares eight characteristics to look for in a co-lead team:
- Skills: individuals in the team are sharing skills.
- Complementarity: they naturally work together.
- Compatibility: not only they work well, they also reinforce each other.
- Shared culture: they share the same values and vision for the company.
- Trust: the relationship is built on trust.
- Cooperation: they are all able to work effectively in teams and cooperate.
- Consistency: they move in the same direction, at the same pace and without causing too much friction (resistance is still necessary).
- Cohesion: they form a homogeneous, united and harmonious whole.
Finally, Luis warns about the prejudices that can bias the decision-making process. He insists mainly on those about women: there is still a tendency in the world of entrepreneurship to favour men to the detriment of women. Be aware of this and question yourself honestly to avoid being influenced by such value judgments.
A mistake to avoid
Our two experts caution sellers against initiating a transfer when you are not fully prepared to do so; it will only lead to disaster.
If you could take away only one thing from this article, it should be how crucial it is to ask yourself if you really want to transfer your business in the near future. To find out, start by looking ahead: what will you do after the transfer? What are your plans? What are your dreams? If you don’t have any clear answers to these questions, refrain from actually starting the process and simply work on preparing yourself ahead.
In case you really feel ready to take this step, here are our experts’ tips on how to avoid common mistakes:
- If you are selling internally to team members, make sure they—and their loved ones—are aware of the difference in lifestyle that awaits them as business owners.
- Beyond the knowledge related to the good management of your company, think of also transferring everything related to the social capital of the company (the networks of contacts, the ways of doing business, etc.).
- Surround yourself properly.
- Take your time.
- Involve your friends as well as the buyer’s friends and family in the preparation process.
Before leaving us, Luis and Stéphane open up and share with us the nature of their personal relationship with business transfers.
“For most people, selling a business is a once-in-a-lifetime moment,” says Stéphane. “I myself had to go through an external buyout and it required a lot of acceptance: accepting that it was over, accepting that I was going to have to do something else. Everything goes through that, because once it’s done, all the regrets in the world won’t undo it.”
Luis, who himself belongs to a family that has owned a business for several generations, concludes: “A business transfer can be a magical moment; it allows us to take stock of the successes and trials we have gone through together, to review our business model and to reclaim our values and our common vision for the future.”
For it to be a positive experience, however, you have to be prepared. Be prepared for the moment when you decide to sell, but also in case circumstances beyond your control force you to sell… Are you?
Contact us and we can guide you through the process—we too prefer to start as soon as possible!