How to Plan for a Business Merger, Sale, or Change in Leadership - dummies

How to Plan for a Business Merger, Sale, or Change in Leadership

By Steven D. Peterson, Peter E. Jaret, Barbara Findlay Schenck

The time may come when you’re ready to hang up the reins and call an end to your involvement in your small business. In that case, your business plan needs to include an exit strategy that defines how you’ll reap the value of your business upon your departure.

Even for businesses just starting out, having an exit strategy in place is important strategically. Knowing how you plan to go out of business will help you make the right decisions in starting and growing your enterprise.

If your exit strategy involves selling your business or merging it with another company in the near-term, business planning takes on a whole new urgency.

Assess your company’s transferability

Even if your business is in great shape, you still have to convince prospective buyers that it can transfer into their hands and still stay strong. The issues of most concern are

  • Whether customers will stay with the business even after a change of ownership. A buyer wants to be convinced that clients are more loyal to the business than they are to you, the business owner. Be ready to show the number of clients who have long-standing relationships with your business and explain why they’ll stay customers when the new owners take over.

    Also be prepared to explain how customer information is kept in databases that can be transferred to the new owner.

  • Whether the company’s key capabilities and processes will remain intact. A prospective owner must be convinced that the company will go on doing what it does well. Take time to assess whether your business has developed systems around your capabilities and whether those systems are easy to adopt, thanks to business and marketing plans and production and policy manuals.

  • Whether legal contracts can be transferred. A buyer wants to know that contracts for client, supplier, distributor, and other key business relationships exist and are transferable or assignable. The same goes for building and equipment leases. Especially in the case of your building lease, if your business success is reliant upon its location, be sure your lease extends at least five years into the future.

  • Whether the workforce will stay. Key employee contracts, profit sharing programs, employee benefit plans, and other employment incentives help bind employees to a business, as do programs that inspire employee development and morale. Be prepared to explain your employment programs, plans, and policies to a buyer.

Plan for a change in leadership

When the head honcho of a big company becomes too closely associated with its success, the Board of Directors and investors begin to get nervous. No wonder. Unexpected things can happen, from illness to a defection to another company. If a firm’s products and success appear to be the result of one individual — think iPods and iPhones — everyone gets jittery.

Even in small companies where everyone pitches in, an unexpected change in leadership can cause major disruptions reaching all the way to the bottom line. Indeed, a lack of succession planning can be devastating in a small business caught by surprise when the top leadership departs.

Planning for succession or a change in leadership is critical. Your blueprint for passing the torch doesn’t necessarily have to be part of your written plan. But succession plans should definitely show up there if a change at the helm is imminent. You may also want to address your back-up plans for other top people on your management team, depending on the size of your company.