“Show me the money!” Mr. Rod Tidwell, remember him? That egomaniacal football player who was all about “the money” in the Golden Globes snubbed classic movie, Jerry Maguire. Similar to Tidwell, many business owners also want prospective buyers or successors to “show them the money” when looking to transition out of a company. Certainly individuals want to maximize the value received for their companies or for what they can do on the football field, but what about engaging in proactive transition planning to better position owners and their companies to attain “more than” the money? For some owners, the “more than” component of an ultimate transition can be as important as “the money.”


Transferable Value. An owner wants to first ensure financial security is attained when transitioning out of a company, and the “money” needed to satisfy that financial goal is likely to be received if an owner has positioned him or herself to create, grow, and preserve transferable value in the company. Transferable value is what a company is worth, to someone else, without the owner’s involvement. It is oftentimes the prime determinant of success for an owner’s transition. If the company cannot be run without the owner, it has low transferable value, and there is work to do.

One of the largest and most common roadblocks to company growth can be an owner. An owner needs to be able and willing to evolve his or her relationship with the company if it is to flourish and reach its potential. The company cannot continue to heavily rely on an owner’s presence and input to operate effectively and maintain its current level of revenue. This vulnerability of a company simply poses too much risk to an owner and all parties that depend on the company’s viability. If a company operates with little flexibility or adaptability, a prospective buyer or successor may become less interested due to the extra risk, complexity, and cost.

An owner’s evolution certainly does not happen overnight, but the ability to do so organically, rather than in response to an abrupt and short timeline, is a distinct advantage if an owner is thinking about transitioning the company. The truth is that an owner, considered alone, is limited to how far he or she can take a company by his or her own efforts and labors. An owner must continue to build a company that is strong, prosperous, and impactful, but an owner’s focus should begin to change towards transforming the company’s operations and management to become more independent of the owner. An owner should not delay the building of transferable value until he or she is emotionally prepared to transition out of the company. This means an owner should begin to shift his or her mindset from “what can I do to get this done” to “what needs to happen to get this done” and move from being an “operator” who regularly works “in the company” and struggles with delegation to an “owner” who works “on the company” and can appropriately delegate. As progression is made throughout such an evolution, key benefits will emerge for an owner that include the increased probability of: (i) free time; (ii) multiple transition options; (iii); transferable value growth; (iv) attaining values-based goals; and (v) stronger key management.

Quantification of Resources. An owner’s personal balance sheet signifies the financial strength or risk for an owner. An owner’s business and personal financial resources need to be objectively measured now to establish a baseline for future planning and projections focused on attaining the requisite transferable value to attain an owner’s desired financial security. By establishing an independent valuation baseline, an owner and an owner’s advisors can reliably monitor progress towards established goals and objectives, as well as assist in determining what goals may be realistically feasible. It provides a reliable starting point for determining tax consequences of potential transition options and the related strategies for minimizing those identified tax consequences. The results of this process can be a needed reality check for an owner. It generally indicates the complexity of planning that may be needed to achieve an owner’s desired goals and objectives, which may lead to and influence an owner’s realignment of needs and wants for a transition.

Current valuation details for the company and an owner’s personal resources help avoid an owner from becoming “frozen” in the middle of a transition. An owner may suddenly have serious doubts and ask, “Am I even getting a good deal?” or “Am I certain this offer allows my family to maintain our lifestyle and secures our future financial goals?” While the cost associated with an independent appraisal may not be well received by an owner, especially during times of revenue and cash flow uncertainty, it is a relatively small upfront cost compared to the value an owner receives in return from the clarity and confidence instilled before, during, and after a transition. Completing this process will allow an owner and advisor team to understand how far an owner has to go to attain desired transition goals and objectives and how long it may take to do so.

Value Drivers. A company with strong value drivers becomes a more attractive acquisition to a prospective buyer or successor because these drivers usually contribute to increased cash flow. Generally, the greater the cash flow for a company, the greater the planning opportunities for an owner. Reliable cash flow projections assist in identifying potential strategies that can be utilized during the planning process, help demonstrate what may be feasible, and propel certain strategies to grow transferable value. Company value is generally increased when strong value drivers are developed and adopted by an owner and the company. Sometimes additional value drivers may be pertinent in a certain industry, but universal value drivers frequently include the following:

• Stable and motivated next-level management team;
• Operating systems that improve the sustainability of cash flow;
• Demonstrated scalability;
• Operating profit margins that are at least as good as industry average;
• Solid, diversified customer base;
• Recurring and sustainable revenue;
• Identification and enhancement of competitive advantage(s);
• Viable growth strategy;
• Effective financial controls; and
• Recurring cash flow.

Identifying and prioritizing the top value drivers for an owner and company is important. An owner’s advisor team can help the owner focus on the drivers and corresponding strategies that will likely have the most impact on the transferable value of the company. A company that has strong value drivers can demand and receive not only a higher offer from a prospective buyer or successor but also certain non-monetary goals that assist in achieving “more than” the money.


Values-Based Goals. Attaining the after-tax sale proceeds that provide the desired financial security is certainly mandatory for an owner to be satisfied with the outcome of the transition, but several other important less-concrete, non-monetary objectives, an owner’s “values-based” goals, ought to be at the forefront of an owner’s mind. These goals play a pivotal role in the decision criteria to achieve the ideal transition. Having received the desired amount of proceeds from a transition without the personal satisfaction and fulfillment of certain values-based goals may leave an owner with feelings of regret, emptiness, or frustration. It is not uncommon for an owner to come to the realization soon after a completed transition that certain values-based goals should have been more of a focal point throughout the planning process. This realization commonly results from an insufficient period of time allowed for effective planning. Timely transition planning helps minimize the chances an owner is remorseful due to the unexpected impact a transition had on an owner’s community, family, and mindset, as well as company culture, etc.

An owner’s advisor team should be diligent to inquire about and suggest potential “values-based” goals. Once discussed, identified, and prioritized, these goals may end up guiding and playing a prominent role in an owner’s choice of a particular transition strategy and overall plan, so long as the desired financial security is able to be attained. Indeed, an owner may select a buyer or successor who may be offering a lower purchase price, but presents an opportunity to preserve and protect the positive impact he or she had always hoped his or her “transition” would have on the local community, on the culture of the company, on his or her family, or on his or her personal legacy.

Goal Selection. Identifying values-based goals is frequently based on an owner’s sentiment, attitude, or feelings. These goals should be concrete, actionable, and achievable. Generally, the following values-based goals warrant thoughtful consideration by an owner when planning for a transition.

• Money in pocket when control is relinquished;
• Enjoyment of a smoother, faster transition process;
• Transition of an owner’s mindset;
• Avoid future litigation;
• Minimizing tax obligations;
• Taking the company to the next level;
• Impact on company culture;
• Impact on key employees;
• Leaving the local community in a better position;
• Civic and charitable impact;
• Family harmony;
• Affirming an owner’s legacy;
• Maintain or increase lifestyle in retirement;
• Post-transition personal interests; and
• Avoid unpleasant surprises and unintended consequences.

An owner should carefully consider, prioritize, and commit to selected goals. These goals reflect an owner’s personal values. To uncover these values-based goals, an owner should ask the following questions:

• What is my vision for my company without me?
• What is my vision for me without my company?
• Is this particular values-based goal important to either vision?
• What are the likely consequences to others of transferring my ownership as I currently intend?

Goal Conflict. Sometimes values-based goals may conflict with one another. When these goals collide, planning can come to a halt. An owner should prioritize colliding goals and make any necessary modifications to alleviate the conflict and provide further integration of goals where possible. Conflicting goals should be individually assessed and analyzed from the following three perspectives.

• Risk: Will a particular goal choice increase or decrease risk to an owner’s financial security (and other) goals and to the company?
• Control: Will a particular goal choice affect an owner’s ability to continue to control the company and his or her own future?
• Value: Will a particular goal choice reduce an owner’s ability to achieve his or her values-based goal(s)?


Transition Planning. An owner may view his or her ultimate transition out of the company as an isolated event, and this view is exactly what can lead to undesirable transition results. Business owner transition planning should provide a coordinated, structured process for an owner before, during, and after various changes he or she may experience that both indirectly or directly impact an owner, an owner’s family, and the company. It involves the efforts and coordination of several professional advisors but should be led by an advisor who is able to view and coordinate all planning for an owner and the company through the “transition” lens. This advisor not only ensures the creation of the transition plan, but also its timely execution. The core objectives for engaging an owner in transition planning include the following:

• Create awareness;
• Expand visibility;
• Improve readiness;
• Change outcomes; and
• Increase results.

Business owner transition planning is not a set of documents or financial projections, nor is it a short-term consulting engagement. It is a long-term, comprehensive engagement for an owner that strives to align, integrate, and structure the important components of an owner’s ultimate transition out of a company. An effective process will likely address an array of professional expertise in areas that include, but are not limited to, estate planning, personal financial planning, corporate governance, ownership agreements, company contingency planning, business coaching, risk management, employee benefit plans, key management employee agreements, leadership training, tax planning, and transaction representation. The planning should be owner-centric and focused on increasing the probability that an owner can navigate towards the ultimate transition when he or she wants, to whom he or she wants, and for what he or she wants.

Timing. An ideal transition for an owner out of a company generally requires the alignment of the market, the company, and the owner, all of which have to be willing and well-positioned in order to increase the probability of achieving the desired goals and objectives. Timing may be out of the owner’s control, but it is also the reason why proactive transition planning by an owner needs to start today to enhance the ability to seize those opportunities when the market, the company, and the owner all intersect from a transition-readiness standpoint. An owner often learns that when he or she is ready to leave his or her company, the company is not ready to be left.

Better facts allow for better planning. Working with the right advisor team who has sufficient time to engage with an owner tremendously helps establish better facts. This is crucial to help an owner overcome the following common transition obstacles and assumptions:

• When an owner is ready to sell, a buyer or successor will appear;
• Lack of understanding of the various complexities in transitioning a company;
• Hesitation or refusal to think about retirement or mortality;
• An owner will just easily pass the company to children or a group of employees; and
• Viewing the transition as an isolated event.

You may recall in the movie when Jerry Maguire pleads with Tidwell and proclaims, “Help me, help you…help me, help you.” I find myself uttering these same words at times, and it is a good prompt to adapt and find new avenues to engage an owner to lay the runway to build planning momentum. Every owner and company is different, but all owners can benefit from enhanced structure, coordination, and proactive advice tailored to them.

Know Your Big Picture. Seneca, a Roman philosopher, once wrote, “You must know for which harbor you are headed if you are to catch the right wind to get you there.” I routinely challenge myself to articulate my own “big picture” and towards which “harbor” am I heading. This same challenge should be posed to an owner. If an owner has not made a sufficient commitment to proactive transition planning, that owner may face significant uncertainty on how a transition may turn out and what winds (i.e., value drivers) to adopt and utilize to reach the ideal transition result. The earlier an owner starts engaging in discussion, establishes the right advisor team, and commits to making proactive transition planning a top priority, even if the exact ultimate transition route is then unknown, the more time and options an owner has to identify and bring his or her established goals into harmony, avoid unnecessary obstacles, address and minimize vulnerabilities and risk, maintain control until attainment of financial security, increase transferable value of the company, and at the end of the day be shown “more than” the money!

For more information about business transition planning, contact Dan Meiklejohn IceMiller LLP

This information is not advice and should not be treated as such. You must not rely on the information in this article as an alternative to legal, tax, or financial advice from an appropriately qualified professional. If you have any specific questions about any legal, tax, or financial matter, you should consult an appropriately qualified professional. You should never delay seeking legal advice, disregard legal advice, or commence or discontinue any legal action because of information in this article.

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