Thinking of selling? Why a solid business plan is essential

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Transitioning your business is an emotional process. That’s why you need a methodical, unemotional approach.

Lawyer Lisa Collins specializes in working with entrepreneurs to create solid, sustainable business transition plans. Making a successful transition happen can take years; not only must a successor be found, but both the owner and the business must be prepared and ready. Working through the process in an objective and disciplined manner can reduce stress and worry, and help ensure that, instead of simply being an ending, the transition of the business is seen as the next logical step in a rewarding entrepreneurial career.

Lisa Collins, QC, TEP, has practiced as a lawyer for over 30 years. Now she is principal at Luminira Business Transition and Wealth Strategies, a Victoria, BC company that offers strategic support to business owners during their business transition process.

Originally from a small farming community in southern Manitoba, Lisa grew up in an entrepreneurial family, and has personal experience with the particular challenges and opportunities of running a business in a rural area.

Community Futures Alberta interviewed Lisa from her office in Victoria.

CF Alberta: Lisa, there are all kinds of checklists and articles on the Internet that explain how a business transition should take place, but what is it actually like for individuals and families as they’re going through it?

Lisa Collins: Well, it’s a very big change for people – and most humans just don’t like change! It can take a long time for them to adjust; after all, this is a process. A change like this generally doesn’t happen from one day to the next. It’s almost like there are different stages of emotional reaction, just like the stages of grief. It can be very trying and stressful.

That said, if it goes well it can be an extremely positive event in their lives. It can be seen as the final realization of all of their hard work. Transitioning a healthy, successful and well-run business to a family member or a buyer is a real testament to all they’ve accomplished.

CFA: What are some of the common areas of difficulty that you encounter?

LC: The most common struggle is with giving up control. After all, entrepreneurs often get into running their own businesses because they don’t do well answering to other people! Also, for many of them their sense of identity is intrinsically connected to their company; stepping away from the business means a big loss of who they are.

In a family business, or in small, more casual businesses, there may also have been a tendency to avoid assigning clear roles and responsibilities – everybody just “pitched in” and did what needed to be done. But when it comes to transitioning, everyone needs to know where they stand and what they can expect. Clarity is important.

CFA: Do specific issues arise when it’s a family business?

LC: Oh, of course. For one thing, business owners worry about their kids, just as any parent does. Is this the best thing for them? Can they pull it off? There can also be generational differences; I’ve certainly seen very big contrasts between Boomer parents and Millennial kids. Boomers tended to just work like crazy, but Millennials don’t always consider that to be a necessary part of running a business. They have different ideas about work/life balance. So parents may struggle to accept the next generation’s way of doing things.

A family transition is especially difficult when there are a number of children but not all of them are involved in the business. Most parents want things to be fair, and that can be tricky. How do you compensate everyone? Doing some diversified investing early on, to create some wealth that’s outside the business, can be very helpful.

CFA: How do business owners feel once the transition is all over and done with?

LC: For many people it’s as if a light has gone on for them – they suddenly realize what a big burden running the business has been, and now that it’s lifted they see what the next phase of their life can look like. Some people find it very hard, but once they extricate themselves from the business it’s usually not so bad.

I recently worked with a client who transferred the ownership of his business to his daughter and son-in-law. He knew it was the right time to step away, but he was really struggling with losing control of everything he had worked so hard to achieve. However, I saw him fairly soon after the transfer, and he was already a whole new person! After all the work that had gone into the transition process, he was finally ready for it.

That’s why planning is so very important. When a transition has to happen very suddenly – like in the case of a death or illness – it’s much more difficult.

CFA: What should business owners do in the case of a sudden transition like that?

LC: Well, ideally there should be a plan in place for that eventuality, so that the business can keep running without too many hitches. For one thing, the business’ systems and processes need to be laid out and explained somewhere; too often they only live in the owner’s head. That’s something that needs to happen for any transition; doing it sooner creates more security in the case of some kind of emergency.

In the case of a sudden transition, an advisory board can be very useful. I recently wrote an article about these boards on my blog. For a smaller business, an advisory board can simply be one or two people who are trusted friends or professionals with whom the owner has a mentoring relationship. It doesn’t necessarily have to be a formal relationship, as with a bigger business, but it’s still a valuable support.

CFA: How does working with an expert like you help the transition process? What are some of the roles you play?

LC: The biggest thing is that it helps business owners make sure that they are taking a business approach to the transition. I have an objective vision and process, and I can help them approach the situation methodically and avoid getting bogged down in relationships and workplace dynamics.

I like to compare myself to an architect. Architects gather information about what the client wants, then draw up a plan that is structurally sound and feasible. After that, they bring in experts like carpenters, plumbers and electricians to actually put the plan in place. In the same way, I work with clients to assess their needs, and then draw up a transition plan that most closely matches their needs while still meeting all the legal, taxation and business requirements. Then I bring in specialists to provide legal and accounting services.  I stay involved to oversee and guide things.

My main role – and the one I consider the most important – is that of counsellor. I am the trusted advisor and the shoulder to cry on; I bring an objective sounding board. I help people work through their fears and hesitations, and assist with keeping the various lines of communication open and making sure things stay on track.

CFA: What are some common mistakes that people make when they try to go through the transition process alone?

LC: Possibly the most common is starting with the tax plan. That probably happens because they first consult with their accountant, who is the outside expert they most often work with. The tax plan is important, of course, but it shouldn’t lead the process. It should be part of the implementation phase, not the planning phase.

Also, people often have a hard time taking a business approach to what they see as a family situation – whether it’s actual blood family, or partners and staff that feel like family.

CFA: You’re clearly very passionate about your work. What do you love about it?

LC: Well, I come from an entrepreneurial family; we had a number of businesses in the small town where I grew up, and then my parents turned to farming. In a way, I feel as though this work is ingrained in me!

I really enjoy seeing how people become empowered during the transition process. It puts them in the driver’s seat, instead of just reacting to things. Most of all, I like helping people look after what they’ve worked so hard to build. Their business is one of their greatest achievements; I’m privileged to help them keep it safe.

CFA: Since you come from a small town, can you give us some insight into specific challenges that rural business owners might experience at transition time?

LC: The most obvious one is that they may not have the resources they need in their own community. Sometimes people from small towns prefer to deal with local advisors, who they’ve known for years, but the fact is that they may not have the business expertise to best handle a transition. It’s important to find someone who specifically knows about this area. In this day and age, with email and Skype and so on, that person doesn’t necessarily have to be right next door.

Also, staff in rural areas – whether they’re part of the family running the business, or employees who are in line to take over – may not have had the opportunity to work elsewhere and come back to the community. It’s not an essential component for a successful transition, but it can be helpful to have been exposed to other ideas and ways of operating.

If owners are looking to sell to a third party, there’s no doubt it can be very difficult to attract the right person to a rural area. Many small towns are struggling, and unless the community is making a determined effort to attract investment, small business owners can be left out in the cold. But I do believe that a change is coming, and it may be sooner than later. More people are turning their backs on the big city and heading to small towns as a lifestyle choice. My own hometown is doing a lot of work to make itself more attractive to new residents, and a lot of communities are realizing that they can influence their own future.

CFA: Do rural business owners need a longer timeline for their transition?

LC: If they’re looking to sell to a third party, then they may. But no matter where you are in your business, you need to have some kind of plan in place. As I said earlier, every business needs a plan in case of a sudden emergency transition. And once the owners are in their 50s and 60s, they need to start thinking about what they need to do to make sure that they can someday stop working so hard. Getting ready for transition isn’t just about finding the right person to take over: it’s about making sure that the business is at its very best, that you have maximized its value, and that it’s being run in a way that makes it easily transferable – like, as I said, having all the important information written down somewhere, rather than just in the owner’s head.

CFA: Finally, do you have a success story that you feel really exemplifies what a good transition process looks like?

LC: I do! I’m thinking of a family business that I started working with about 10 years ago. There are two children: a daughter who isn’t directly involved with the business, and a son, who stepped in as the next owner. He originally went away to get experience elsewhere, then came back about five years ago and started in the lower echelons of the company. Over the years he worked his way up, mentored not only by his father but by other senior managers. About three years ago, when it was clear that he was ready and capable of taking over, the transition process was accelerated.

First the father had the business valued, so that the son knew what he was starting with and what he was expected to maintain. Then the son actually started running operations; his parents stepped back a lot, but were still very available for advice and mentorship when needed. I’m happy to say that the son is absolutely loving the challenge and that the business is doing very well.

This plan was put in place over time, beginning before the son had even come back to work for the company. To create the best possible plan, you have to get the big picture, and that takes time. Then you can fit all the pieces together one by one, like a jigsaw puzzle, and create something solid and lasting.

CFA: Thank you so much for your time Lisa. We’ve learned a lot.

LC: My pleasure!

For more information about Lisa Collins and her company, please visit her website at www.luminira.ca

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Success stories

Community Futures Network of Alberta

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