Transitioning a business is complex. It depends on several factors such as competitive dynamics, capital market conditions, attractiveness and readiness of the business, and shareholder and stakeholder objectives.
Assessing Competitive Dynamics
It is important to assess four key factors that drive business success: strategic plan, financial resources, leadership and alignment of incentives. Once that assessment has been made, you should determine how these factors might be stacking up against the competition you will face in the future.
Often, the answer is not how these factors got you to where you are today, but what combination of resources will take you to where you need go. Given the changes in your industry, financial markets and aging of the leadership team, you may be able to identify a time table that will be in the best interests of all stakeholders.
Discerning Capital Market Conditions
Capital market conditions also play a role in deciding when to transition. You need to assess what buyers are actually paying for companies like yours. Prices and terms for businesses have their own cycles. Financial peace of mind for shareholders and the stability of their retirement plans should also be considered.
Identifying Business Attractiveness and Readiness
A third factor is whether your company is an attractive target and ready to go to market. It is crucial that you get a realistic assessment of what your company could sell for and whether it can weather a critical due diligence process.
It is important that you determine what additional value-drivers would enhance the worth of your business and whether you need time to integrate them. If there are gaps that require a few years to implement, you need to factor that into your time horizon. Irrespective of the keep or sell decision, identifying and implementing value-drivers are in the best interests of you and your shareholders.
The fourth factor is shareholder and stakeholder objectives. Often, non-financial reasons drive the decision as to when to transition the business. By looking ahead, you can begin to identify an appropriate timeline for the transition.
Often the value you could derive today may not provide the liquidity and cash flow needed for a transition out of the business. So, you may need to build a liquid, safe and diversified pool of assets outside of the business along with your qualified retirement plans. You can forecast and identify the year in which the combination of liquidity outside of the business and net sale price will provide you the financial peace of mind you need to transition on your terms.
Find Additional Insight on When to Transition Your Business
Your PNC corporate and wealth team has the experience and financial modeling tools to help you “fast forward” down the road of life as you decide when to transition your business. Take the guesswork out of the equation and make sure your team understands your objectives. They can outline your options so you can gain control of perhaps the most important financial decision you will make during your lifetime.
Please contact your PNC representative to further explore Business Succession Planning.