Sector Expertise

How to plan an ideal business succession

how to plan an ideal business succession

Are you buying or selling a helmet and goggle company? 

If you are a buyer, you know how frustrating it can be to obtain crucial company information early in the process to decide whether to proceed with negotiation and courtship.

If you are a seller, your departure entails deadlines, coordination and a team effort to prepare. Read on for some tips and motivation to start this effort sooner - rather than later.

If you are a seller, It is never too early to start a business succession plan.

Preferably, a company’s initial launch and business plan incorporates an exit strategy from the beginning and keeps it in mind with every business decision. 

However, as companies gain market seniority, they can forget that someday the company might see significant changes such as major leadership shifts, taking on new investment partners or selling. Either way, the time is now to get company team members on board to keep up the daily reporting necessary to draw upon the facts and figures on short notice.

Putting yourself into the buyer's frame of mind

Sellers are often so focused on selling (and so emotionally attached to the company they have built) that they fail to look at the business from an outsider’s point of view. 

Initial meetings are exciting for all the parties involved. Hyped sellers focus on non-tangibles like reputation, time-in-the-market or marketing infrastructure to tout the company’s value.

Nevertheless, buyers do not part with their money easily. After introductions, topics will quickly shift to tough financial and operations questions.

As part of due diligence, buyers will understandably delve into the accounting inconsistencies, supply chain challenges and any negative red flags.

Undergo the information gathering stage step-by-step

If you want to be a contender for investors, get help to make sure the information is presented in a way that the buyer would want to see it presented - which is not necessarily the way your company is accustomed to reporting. 

  • Find a seasoned third-party expert that can determine where the potential information vacuum might lie from a buyer's perspective.
  • Let your staff know that the process of taking a snapshot of the business status is on the horizon. Schedule time for this exercise.
  • Know what information resources you have on hand for a working capital assessment, manufacturing challenges and operations evaluation, a supply chain review and an analysis of capital expenditures.

Where you find this information should be the same as what you are using for your day-to-day reporting, such as your enterprise resource planning (ERP) solution, accounting and HR software and annual business plan.

If you don’t have these tools, you might have to invest in them.

Just as you would invest in home staging and repairs before selling your home to get the optimal price, you will need to upgrade your equipment, hire missing talent for a crucial role or acquire tools to fill a blatant gap in your company.

Buyers appreciate transparency, so if you want to sell to the RIGHT buyer based on YOUR timeline, start compiling information today, so you don’t get caught off guard throwing together information when an opportunity presents itself.

Use a centralized digital drive where your team can drop the information to format later

  • Make sure the basics are in order. Prove your brand ownership, trademarks, patents and intellectual property. Review the entity status documents, bylaws, resolutions, and your operating agreements.
  • Buyers want to make sure they are dealing with the people that have the power to be negotiating and selling.
  • Start with a detailed sheet of your assets so you are clear about the tangible value of the company. Plus, this will might make you reconsider. Is selling really the right thing to do?
  • If your business comes with the property, check that your business activity is still zoned properly, what the current permitted hazardous material contamination regulations are, any permit violations, and enforcement deficiencies.
  • Obviously, you will need your sales, profits, debt, expenses, and cash flow data ready.
  • Outline any legal liabilities the buyer might inherit like liens, judgments against the company or any of the executives.
  • Back-up your sales projections with reputational information, general market forecasts and “know your customer” research.

This type of information might take longer than you think. It can entail having to do third-party customer surveys or paying for a market research report. 

If word gets out in the market too soon that you are selling or stepping back your personal involvement in the company, you could put downward pressure on your asking price. It is important to work with only trusted ethical people throughout all the stages of the succession process and make sure that who sees your company’s report is closely guarded and protected by a Non-Disclosure Agreement.

The most important step: Choosing the right buyer

Once all the information gathering is done for your valuation, the most important step is to take the time to contemplate who the RIGHT buyer is.

How will your sale impact the local economy and our sporting equipment sector as a whole? 

The sale of your company will undoubtedly impact employees and your customers. But also consider how the national and international sector landscape is affected by the aggregate decisions of businesses like yours.

For helmet and goggle company projects to prepare for mergers, acquisitions and succession planning, contact Clovis Henzen Consulting.

Photo credit:  IG: @silvanpoltera 

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