You Only Sell Your Business Once: Preparing for a Seamless Transition

Selling a business is a significant milestone in any owner’s journey. Yet, many owners underestimate the importance of preparation, often initiating the thought of transition plans only when they are on the verge of selling. The reality is that for the owner and the company to be in a better position for a smooth transition, effective preparation should begin well in advance of a sale, which may start up to a year before a transaction commences.

As a result of the numerous Employee Stock Ownership Plan (ESOP) transactions that Lazear Capital Partners completes on a yearly basis, we are presented with unique insight on the recurring patterns that impact sellers’ transaction experiences. Time and again, a pattern of characteristics has developed that seems to have a material impact on the sellers’ experience.

The considerations below are key factors that can lead to a more efficient selling process, which can help mitigate hurdles such as minimizing delays, additional fees, and unnecessary stress.

Factor 1: Establish a Strong Management Team

One of the most critical factors for a successful business sale is having a robust management team in place. Why is this important? Experienced management members being involved in an ESOP sale can assist in advocating for the company’s value, share in the workload during the sale process, and educate other employees on what it will mean to be an ESOP-owned company. ESOP buyers typically seek assurance that the leadership can carry on effectively after the owner’s departure. A solid management team signals to potential buyers that the business’s value is not solely tied to the owner. ESOP ownership provides time to plan for a gradual transition, identifying key individuals within the company who can take over leadership roles or recognizing the need for external hires. While a key advantage of an ESOP sale is that a final leadership solution doesn’t need to be implemented immediately, the trustee will still require a plan for future leadership.

Moreover, it’s essential for the owner and management team to be aligned on the company’s vision. Has management ever expressed an interest in a management buyout? Does the existing management team hold a minority stock position in the company? Will management members require a pay increase to lead the company once the owner steps away? Understanding the answers to these questions and management’s view can help avoid unexpected challenges during the sale process. In the case of an ESOP, structuring management incentive plans, such as Stock Appreciation Rights (SARs), can enhance retention and recruitment, motivating the team to maintain focus and performance throughout the transition period.

Factor 2: Ensure Strong Financial Data and Reporting

Accurate financial data is crucial in any transaction. Weak financial reporting can negatively impact the business’s valuation and its ability to secure financing. Additionally, precise financial information minimizes the risk of errors during due diligence, which can delay the process or alter outcomes from what the seller expects.

To strengthen financial reporting, consider implementing monthly reporting and obtaining third-party assurance through reviewed or audited financials. This not only reinforces the validity of your numbers but also aids in future decision-making. Solid financial data maximizes the business’s value and can facilitate better financing terms, as higher assurance levels reduce uncertainty for buyers and lenders.

Factor 3: Build a Team of Trusted Advisors

Another critical aspect of preparing for a business sale is assembling a team of trusted advisors. Company counsel, tax accountants, wealth advisors, and investment bankers collaborating from the beginning can ensure the most effective and beneficial outcome for sellers. Data gathering is a vital part of the transaction process, and having the right people in place can make this task manageable. A competent team can streamline these efforts, allowing you to focus on high-level decisions.

Consider hiring a wealth advisor or incorporating your existing advisor early in the process. This professional can assist in evaluating decisions during the transaction and help develop investment strategies based on projected cash flows. Additionally, they can play a crucial role in tax planning, ensuring that you are prepared for the financial implications of the sale. Lazear has established relationships with lawyers, wealth managers, and accounting professionals nationwide, making it easier for sellers to find the right support from the outset.

Conclusion

Preparing to sell your business involves numerous considerations, but focusing on accurate financial data and having a strong internal and external team of professionals will have an overwhelming impact and will set sellers up for a seamless transaction. It is never too early to start planning for your business’s future. Engaging professionals like Lazear can provide invaluable assistance throughout this journey, helping to navigate the complexities of a business sale and ensuring a successful transition for both an owner and the organization. Remember, you only sell your business once—make it count!

About the Authors

Megan (Deighton) Ellis, CPA Associate

Megan Ellis is an associate for Lazear Capital Partners, where she is committed to working closely with business owners to guide them through a successful transaction with clarity and professional fulfillment. Prior to joining Lazear Capital, Megan was an assurance manager at Plante Moran where she served middle market, private companies primarily in the manufacturing, distribution, real estate and construction industries. She performed external audits and specialized in the accounting of business acquisitions. Megan’s background also includes experience in financial statement preparation and analysis, technical accounting research, and benefit plan audits. Further, Megan spent a year working for Mazars in London, England where she audited global, privately-held firms.

Joseph Kleeh, CPA, MAcc Joey Kleeh, CPA, Associate

Joey Kleeh is an associate with Lazear Capital in the firm’s Mergers and Acquisitions and ESOP practice. Prior to joining Lazear Capital, Joey was a Senior in the Assurance practice at Ernst & Young, where he served in a lead role on external audits for Fortune 500, mid-market private, and employee benefit plan audits, mainly focused in the advanced manufacturing and healthcare navigation industries. Joey’s client serving experience includes SEC filings, mergers & acquisitions, and various technical accounting matters.