Business Transition Consulting

Tracking Your Value


Family Business Transition

Whether it is formal or informal, written or implied, almost all family business owners have a plan for what is to become of the business once they are not involved. This is most often called “succession planning” but, perhaps, “transition planning” may be a better term.    The traditional succession plan envisions a process whereby younger family members learn the business and gradually assume leadership roles. Many times, however, there are no children interested or capable of assuming control and, so, the succession plan may actually be an exit plan since the ultimate goal is to sell the business. Sometimes the plan is to sell to management but, often, a sale to a third party is the best option.

  1. What is my value now?
  2. What is my target value?
  3. How do I get there and how long will it take?

Maximizing Value

In reality, accomplishing the goal of maximizing value and capturing that value takes a team effort. Of course, management has to do the lion’s share of the work by planning its business and executing on its strategy. But advisors play a key role in providing management with the resources and expertise it needs to stay on track. Outside directors, management consultants, accountants and attorneys are almost always part of the advisory group. You should consider one more: a valuation consultant.  Every strategic move you consider will affect value. So, if that is true, shouldn’t you consider the valuation effect before you undertake a major corporate action? If value is the ultimate measure of a successful exit, it should also be the best measure of interim results. Just because sales or even profits are rising does not mean the business’ value is as well. 

Estate & Succession Plan

In reality, most family businesses have two plans—an estate plan and a succession plan. The two should operate in conjunction with one another but sometimes there can be conflicts. For example, suppose a business opportunity offers the prospect of maximizing the company’s exit value but adds risk. How does this impact trusts and financial instruments set up in the estate plan?

Trustees, in their roles as fiduciaries, will doubtlessly find regular valuation benchmarks very helpful. Bankers and investors might also be very keen to have a sense of how values change over time. But, more importantly, from a managerial standpoint, officers and directors should find a valuation metric extremely useful in measuring the results of their planning and strategy execution.

Key Phases of Transition

We would begin by doing a baseline appraisal. Unless the client requires otherwise, the report for this appraisal will not contain a lot of unneeded verbiage and tables. The intention is not to file anything with the IRS or SEC, so a lot of “excess baggage” can be omitted. We don’t need to be writing anything about the company’s business, industry or economic conditions—management already knows this.  The input the client gets answers the three questions about value at the key phases of the company’s transition-beginning (now), middle (then) and end (exit). If the end game all relates to value, shouldn’t this be carefully and skillfully determined?

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(214) 909-6144

Dallas/Fort Worth, Texas