4 Signs It May Be Time to Transition Your Business

At some point in its lifetime, every business will experience a transition such as a restructuring or transfer to new ownership. As a business owner, you will want to know when the best time for that transition is. Some owners have a plan for transition outlined in their company plan right from the start. But if you are like the majority of business owners, a business transition is not front of mind until further down the line. The best time to transition your business is not always the one you plan for. By being aware of the following signs, you will know when your business is ready for a change.

You’ve Considered How Your Business Competes with Others

If a transition happened right now, would your business become a stronger competitor or would it fall behind due to the lengthy transition process? Identify what key factors have contributed to the success of the business. Consider how those capabilities would be affected by a business transition and what it would mean for your competition. Your business might lack a competitive edge or vision that a new kind of leadership could bring to the table. Frequent SWOT analysis will help determine when the business might be ready to face the potential disruption that comes with a transition.

You’ve Assessed Capital Market Conditions

Market conditions and broader economic factors can provide a good reading, not only on the right time to transition, but also the type of restructuring the business needs. Even if your business looks desirable on paper, unfavorable market conditions can negatively affect the selling price and limit the pool of potential buyers.

Sometimes a transition is a necessary response to economic factors outside your control. If your business is severely disrupted, try to calmly observe the responses and behaviors of others in your industry. Assess whether a transition will be a temporary fix to a long-term crisis or if it will keep your company sailing smoothly while other businesses flounder.

Your Business is Attractive and Ready

When purchasing a business, serious candidates will usually request due diligence to get a full, detailed picture of what they are getting into. This can be a long, difficult process that requires careful attention from all sides of the company. You will need to provide records, such as financial statements, profit and loss forecasts, articles of incorporation, corporate bylaws, employment contracts, and insurance policies. Determine whether you have the capacity to undergo a thorough investigation at this time. Additionally, you should identify any potential value drivers that could increase the overall worth of your business. If improvements will take more than a year to implement, delaying the transition might be the best call.

You’ve Defined Shareholder and Stakeholder Objectives

A business transition is rarely a one-person decision. There are numerous stakeholders who would be affected, and, therefore, might expect a say in the matter. In some cases, it will require approval from the board of directors, and equity holders have a vote on whether the business can be sold and how. The logistics of transferring ownership should be discussed with employees and management. Your transition plan should allow enough time to build up the company’s liquid assets. This consideration will ensure that all parties—you, management, and shareholders—feel confident that their interests are protected going into the transition.

There may be personal reasons you want to transfer ownership or restructure your company. Maybe you want more time with family, you are ready to retire, or you want to try a different business venture. The timing of the business transition will also affect your own lifestyle, so it’s important to be ready. The process will be long and difficult, but it is worth guaranteeing that the business will be left in good hands.

It’s always a good idea to get a professional second opinion when deciding whether your business is ready to transition. Our bankers can help you develop a plan for a smooth transition for your business, whether you are selling to new owners, passing on the business to a family member, or transferring ownership internally. We’ll help you find a solution that is tailored to what your business needs. Visit PlainsCapital.com to find a local banker near you.