Business Tip: Making business transitions successful

By Kacey Lindemann Butler, UHV-SBDC Certified Business Advisor, III
Feb. 27, 2014 at 5:02 p.m.
Updated Feb. 26, 2014 at 8:27 p.m.

With more than 80 percent of current business owners being of the baby boomer generation, it is imperative to focus on business transition to the new potential younger generations.

More than half of these current business owners are seeking to retire and leave their place of business in the next five years. So what does this mean for your community? Can your community afford to have businesses shut their doors?

Communities need sustainable business. Without successful business transitions, a large majority of the businesses in rural communities could shut their doors, which decreases jobs and wealth in the community. Each job in rural areas equals at least $112,705 in total economic impact. Existing businesses six years or older generally sustain and create higher quality and higher-paying jobs, which in turn leads to a higher quality of life in communities.

How will your community keep these businesses open?

There are three major options most business owners consider for exiting a business:

  1. Sell the business.

  2. Family succession.

  3. Sell inventory and assets and close the doors.

The most popular option typically is to sell the business, and this process generally takes at minimum three years.

Why? Think financials. Lenders and other private investment firms request at minimum three years of financial information from the current business owner to prove the company's health and worth.

Family succession is the second most popular option. This process can take up to seven years. First, the business owner has to have a successor that is willing to take over the business and, more importantly, is interested in taking over the business.

Then, the process of training that successor can be lengthy because of involvement and length of experience. Sadly, most family successions fail within the three years of transition.

The third option - and the least popular option - is selling the inventory and shutting the doors. Most often, this option is a result of a death or illness to the owner or a close loved one of the business - in other words, an unforeseen circumstance.

Without a proper exit strategy or plan, businesses end up leaving our communities with little to no warning, creating higher unemployment and higher leakage into other surrounding communities; neither of which is desirable.

Seeking assistance from local organizations such as the Small Business Development Center can greatly improve the survivability of businesses in your community. By offering counseling and training services, mostly at no cost, these business owners gain the knowledge they need to successfully transition their business - whether they are selling or purchasing.

Understanding every aspect of the business is critical to surviving in today's competitive environment.

Kacey Lindemann Butler is a certified business adviser at the University of Houston-Victoria Small Business Development Center.



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