There are several things a business owner should consider before deciding how they would like to transition their business to the next generation, company management or outside private equity. In many cases these considerations should be thoughtfully considered in connection with a business owner’s estate plan. This will allow for the movement of appreciating assets prior to their increase in value and allow for an exit event to fund trusts that may be established to hold those assets.
In addition to estate planning considerations, there are other operational matters that should be addressed to avoid potential due diligence issues that could arise during a sale or other type of exit event. If these items arise at that point of the process, they can often impact the overall value of the organization and, depending on the magnitude of the issue, it could kill the deal process.
Other areas to address include quality of financial statement information, evaluation of internal control processes, IT security effectiveness including disaster recovery plans and testing, as well as the timing of when a transition event would ultimately occur. It is critically important that you are able to work with a trusted advisor to ensure that you are prepared to address these issues and confidently respond to potential buyers’ questions related to a variety of areas. Often, just going through the process of evaluating various areas of your business can lead to greater self-awareness of improvement and efficiency areas in your business that you may not otherwise consider, as well as leading to greater clarity of your overall goals.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.