Forget what the numbers say. When there is a small business ownership transition involved, it’s personal.

To own a business is to borrow, to sacrifice, to put in the nights and weekends. Ask any entrepreneur: they put everything on the line  day after day.

So, what happens when it comes time to walk away? Whether you are selling a business, buying a business, or turning the business over to a family member or employee, how will the years of sweat, worries, and small victories add up on a balance sheet or income statement?

“At PNC Bank, we’ve played a role in many ownership transitions,” offers Shana Peterson-Sheptak, PNC Bank’s Executive Vice President and Head of Business Banking. “When it comes to a small business, pride of ownership is a crucial factor for most transactions. There are the memories and the hard work that go into its creation. Naturally, emotions come into play.”

That means, regardless of what kind of ownership transition is taking place, objectivity is your best asset throughout the process. Equipped with that wisdom, it is easier to make an ownership transition that won’t leave you saying, ‘Woulda, shoulda, coulda’ a few years from now. That’s why partnering with unbiased, third-party sources, like business bankers through PNC, helps ease the uncertainty that comes with such an emotional decision.

So, are you ready to buy, sell, or hand over the keys? Here are a few things to keep in mind.

First, Know Your Objectives.

Regardless of what you are trying to achieve, any ownership change is a journey for the buyer and seller alike. It’s far more than simply agreeing on  a price and signing the papers. Instead, it’s better to walk into any ownership change with the mindset that this will be a life-changing event for both parties involved. At this point, the buyer and seller should talk to a banker about more than how to get a business loan and complete the transaction.

“There are those business owners who want a well-deserved rest and want to retire on the proceeds,” Peterson-Sheptak states. “Meanwhile, someone purchasing a business is taking a plunge into a lifestyle that is both demanding and rewarding. As a result, we always ask our clients, ‘What do you want to get out of this?’”

That means having a well-defined idea of what the ownership transition will do for you. And the road you’ll need to take to get there.

As one example, will the sale of a business provide the current owner with means to either retire or move onto other things? For those buying a business, the questions become even more insistent: Does the vision of business ownership align with the reality of the day-to-day responsibility? Do you have a realistic business plan? Will your business provide the necessary income  to justify your financial risk?

To fully answer the question, you need the right mentality, guidance, and experience from a banking partner, like PNC.

Second, Know That It’s A Team Sport.

Business ownership requires a prevailing sense of optimism, not to mention equal measures of grit and determination. Yet, while confidence is essential, knowing your limitations is equally so.

“We’ve worked with a lot of small businesses over the years,” Peterson-Sheptak continues, “And the successful ones all share a common trait. They are constantly seeking out information, advice, and guidance.”

Nobody knows everything. And everybody knows something. This is never so true as when it comes to an ownership transition. Having a group of advisers, and, more importantly, listening to them, can make a stark difference in outcome. 

 “One thing we do is help clients bring qualified professionals into the equation,” Peterson-Sheptak adds. “This helps  ensure a transition plan that benefits both the owner and seller. No two transactions are alike, which means there are no hard and fast rules in terms of the kind of advice you’ll need. But, while the expertise required may vary, having the right people on your team is essential to getting the results you want.”

With that in mind, who might be on your advisory team? Among others:

  • Business Banker. Regardless, if you’re buying or selling a small business, an experienced business banker helps lay the foundation and guides you through the entire transaction process from start to finish.
  • Merger and Acquisition Attorney. It is vital to have someone guide you through the legal complexities of buying and selling a business;
  • Certified Public Accountant. Almost any business sale creates a tax event. A CPA with merger and acquisition experience can help determine and mitigate potential tax consequences;
  • Valuation Adviser. Before a buyer and seller can agree on a price, it’s important to know if that price is grounded in reality. A valuation advisor will take an objective look at a company’s assets, performance, and market position to help create a solid understanding of a company’s true worth;
  • Estate Attorney. Depending on the size and nature of the transaction, an estate attorney may prove invaluable in creating the structures that shield the seller’s newly acquired wealth;

Peterson-Sheptak stresses the need for knowledge as specific to the needs of the transaction as possible.

“To use a sports analogy, a business banker should be the quarterback in an ownership transition, helping the owner or buyer identify and assemble the best resources. In every profession, there are specialists. If you’re buying commercial property, as one example, you want accountants and attorneys who understand real estate investing.

“That’s why our business bankers maintain connections with pros in about every conceivable niche of the business world possible. That way, when one of our clients needs highly technical and specific advice, we don’t just know a guy—we know the right guy.”

Kao’s And Cappy’s. A Case Study for Success.

Meet a PNC client, Silong Kao. He is the proud owner of the eponymous Kao’s, dishing up Thai cuisine to delighted customers in Elkhart, Indiana. To Silong, Kao’s is more than a business. It’s a labor of love.

“I enjoy the relationships we build with customers,” Kao says. “It’s fun, and it’s not just doing the same task every single day. Being in the hospitality business is rewarding.”

As Kao’s restaurant grew over time, he wanted nothing more than to build on his success. That’s when he learned a nearby landmark eatery, Cappy’s, was up for sale. He sensed an opportunity.

“Cappy’s had a loyal following, so I wanted to start the conversation. However, looking back, I underestimated the amount of time it would take to make everything happen. At first, our major concern was how to keep their clientele. Separately, the owner of Cappy’s was a little hesitant about the deal because he wanted to make sure his loyal customers stayed happy with the food and service. We were younger and didn’t have years of experience with the restaurant.”

That meant plenty of confidence building on the part of buyer and seller alike. A PNC small business banker was with Silong throughout the process, helping him understand all the complexities of the acquisition, not to mention the due diligence behind financing the transaction.

“My PNC banker gave me a guideline of what to expect if I wanted to buy another restaurant,” Kao continues. “That included what happens from the seller accepting the offer to the loan process to documentation. At the same time, I had sound advice on communicating well with the seller and ensuring that I fully understood the process behind getting an SBA loan. It was a big help for him to translate the banking language to me.” 

From initial conversations to the final purchase, Kao’s journey took a full six months. Fortunately, he had PNC with him every step of the way. Sometimes, that meant providing objective advice. Other times,  it meant making sure all steps took place in the proper order. Today, Kao is happy to report that Cappy’s hasn’t missed a step, continuing to serve loyal customers with its time-honored menu.

Make Your Transition Work.

In short, an ownership transition is never simple. But, with the right planning and expertise in your corner, it can be easier. If you are considering selling, buying, or ceding ownership, make certain you have the right team in place as well as the right mentality. To learn more about how to make your transition successful, contact us today. And learn how doing things the right way can make a dramatic difference in your long-term goals.