The 12 Reasons Owner Transitions Are Not Successful (and What to Do About It)

The role of the transition growth and exit- planning process in successful business-owner exits.

Over the past several years, we have spoken with business owners around the country who decided they had reached the point of being ready to leave their businesses. However, no one was stepping up to provide them the exit results they wanted. These owners had spent all of their time aggressively working in their business, but had spent little time aggressively working on how they would eventually exit their business. They found themselves late in the game with few options to achieve their exit objectives. Simply put, they were too late. The failure of a business owner to properly plan for their transition and exit is often cited as the reason for such failures. 

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What follows are 12 of the principal reasons that cause business owners’ transitions and exits to be unsuccessful, as identified in the book I co-authored, The Next Step for Business Owners. Each of these reasons impacts the company’s ongoing profitability as well as an owner’s future exit results.

  1. Unclear and conflicting owner objectives. Your financial, personal, transition, and exit objectives are not determined or conflict with each other (or with the objectives of your partners, key employees, spouse, or other family members).
  2. Misunderstood cash flow impact on company price. You don’t understand your exit is dependent upon an inside buyer’s or third-party buyer’s expectations and needs regarding your company’s future cash flow, and you haven’t uncovered or understood how your company’s exit-appropriate, buyer-specific valuation is to be determined.
  3. No business owner estate plan. You have not realized the difference between a regular and business- owner estate plan, and you have failed to adequately protect your family and address your family’s needs and desires relative to your business.
  4. Insufficient company structure and key asset protection. Your company is not properly structured to protect assets, and you have failed to identify your key intangible assets or to adopt the legal safeguards to protect your key intangible assets (such as your key employees and intellectual property rights).
  5. Co-owner issues and disputes. You have failed to utilize a buy-sell agreement and a business continuity agreement to pre-decide how ownership will be bought and sold (and funded) between partners upon death, disability, divorce, disputes, and retirement, and how to avoid or resolve co-owner disputes due to future disagreements.
  6. Mismanagement of personal wealth.  You have failed to properly manage your personal (non-company) wealth, resulting in an indefinite and extended need to draw on company resources and a disruption to your transition timing and to your successor’s expectations.
  7. Non-sustainable business growth. Your company lacks an effective, transition-period, strategic growth plan and continuous business model improvement program for sustaining continued product and service innovation, brand recognition, business growth, and profitability, all of which impacts your company’s growth and survival and, therefore, your future exit pricing and feasibility.
  8. Lack of capable leadership and management successors. A process for replacing key management or leadership (either internally or externally) has not been identified or developed, and you have failed to properly develop, incent, and retain key personnel.
  9. Not keeping the business always ready for sale. You fail to realize that your company should always be ready to be sold. The future can quickly change your presently expected business- exit timing.
  10. Missing pre-exit tax tools. Pre-exit tax minimization steps haven’t been taken in time. 
  11. No capable inside buyer exists: You haven’t groomed a capable inside buyer (such as a partner or key employee) to be ready to buy when you’re ready to sell, and you haven’t designed an economically and financially feasible, mutually beneficial, tax-efficient sale structure to an inside buyer.
  12. Misunderstanding M&A market. You are unable to sell to a third party due to not understanding, addressing, and managing toward the expectations of the M&A mergers and acquisition market for your company in your industry.

In the context of successful business-owner exits, the type of planning needed is transition- growth planning (which encompasses succession planning, transition planning, and exit planning).

The purpose of transition growth and exit planning is to lay out a systematic approach that helps ensure that, in a timely and thorough manner, you take the steps needed to achieve success in accomplishing your personal, financial, transition, and exit objectives.

The transition growth and exit planning process provides a means for business owners to help see the status of their own transition and exit situation, and will show you the steps needed to actively do something about it. This is not a plan to read and then put on the shelf. It’s a plan that is intended to help business owners address a necessary call to action.

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For a more detailed explanation, you can email me to request a free white paper, called “The 12 Reasons Why Business Fail to Successfully Transition or Grow.”

We hope these resources will help business owners design and implement their transition- growth plans for accomplishing transitions and exits successfully.