CASE STUDY #1: Outsmarting Surprises in Business Transition Planning


Outsmarting Surprises in Business Transition Planning – A Case Study

The Issue: An owner wants to transition out of his business after discovering a serious health situation that likely would negatively impact the business, its clients and employees. He researches several transition strategies, but feels that they require him to adapt his needs to the strategies rather than the strategies adapting to him.

The Resolution: He chooses to use The Transition Roadmap Developer™ (TRD) process.

The Story Summary:

While creating his transition plan, a business owner is surprised by several events that are not uncommon during the transition process. By establishing his goals for the transition first, he’s able to test his assumptions, adjust course and, ultimately, leave his company in the hands of a successor he, his clients and his employees trust.

The Story

“Leonard” (not his real name), was the owner of a successful accounting and financial advisory firm. Initially, we worked together to sell the accounting side of the business, so he could focus his energy on the financial advisory side. We implemented several strategies to expand the company and the team, Over time, however, we fell out of touch.

When Leonard once again reached out, he told me he’d spent the last two months recovering from a serious heart attack and preparing for a high-risk surgery to repair a heart valve. Leonard was in his early sixties, so I was a little shocked and a lot concerned by his announcement.

After catching up, Leonard got to the point. “I’ve spent part of my recovery time doing my homework about succession planning.” Another announcement I didn’t see coming.

“I’ve studied the pros and cons of several ownership transfer strategies, but I just don’t think any of them fit me or my business,” he said. “Can you tell me more about your transition process?”

I’m always happy to talk about The Transition Roadmap (TRD) process, so I asked what I thought was the obvious first question, “What do you want from your transition?”

“Want?” Leonard asked. “I want to get out, so I can spend more time with my family doing the things I love to do. I want to put my business in the hands of someone who can carry it forward so I have peace of mind as I undergo surgery.”

“But what do you want for your wife? Want for your family? For the company you’ve built? For your employees and for the customers who have trusted you for years?” I started.

“Whoa!” Leonard stopped me. “I have some ideas, but I really haven’t thought through the specifics yet. I know that I want my family and clients to be well cared for and my employees to be able continue in their jobs.”

“If you start there— with your goals—you are taking the first step in the TRD process,” I explained. Let me send you more information and we’ll talk again soon.”

Over the next eight months, Leonard created his transition path using the TRD. We started by building his Transition Compass: answers to six questions that would guide him on whatever path he chose to take.

Leonard had a head start on his Why, or his goals, yet we dug deeper using The Objectives Matrix™. He noted whether each goal was something he already had experienced and wanted to continue, if it was a long- or short-term goal, and it was what we call a “Deal Breaker,” a goal he would not want to sacrifice.

Next, Leonard identified his What. In other words, What he had to transition included an operating business, a list of very loyal clients, and an equally loyal group of employees. For other owners, their What might be several divisions of a company, or both brick-and-mortar and online retail operations.

The question of Who wasn’t as easy for Leonard to answer, but he had no trouble describing his ideal successor: “Someone who will treat my clients and employees as I have.”

After answering the last three questions (When, How Much and How) with varying levels of certainty, we began exploring whether and which transition options would the ideal outcomes he desired using The Options Matrix™. On that Matrix we listed his goals along one axis that he listed in his Objectives Matrix and, along the other several possible transition options sandwiched between the two options available to every owner: sell to a third party and maintain the status quo. We could then assess which of the options best matched Leonard’s goals.

Leonard was somewhat stunned when an option that he hadn’t seriously considered popped up as the one that best matched his goals: Sale to a key employee.

“Wow! Theoretically, I know that’s an option,” Leonard observed, “but it raises more questions: Which employee or employees and how will they pay me what I want and need for the business?

“Leonard, you aren’t the first owner whose expectations about who would make the best successor changed during the TRD process and you won’t be the last,” I responded.

Leonard spent a few weeks thinking about which employee to approach about possible ownership and, as a CPA and certified financial advisor, figuring out how much cash he needed from the business to live the rest of his life comfortably.

When he decided which employees to approach, Leonard was both concerned that his desire to leave remain confidential and unsure of what response he’d get.

“Think of it as a fishing expedition,” I suggested. “Try something like, ‘Since my heart attack and looking ahead to surgery, I’ve been thinking a lot about the future of the firm. Have you given any thought to what the next few years might look like?’”

“So, I’m fishing for information, rather than looking for an answer,” Leonard concluded.

“Exactly. Go into the conversation knowing what information you will and will not share,” I suggested, “and try to anticipate what this person might say and prepare your response.”

A few weeks went by before Leonard and I talked again. When we did, he told me that he’d gone fishing and caught something he didn’t expect.

“I decided to ask ‘Jen’ (again, not a real name) for her thoughts since she’d been with the firm for over 20 years. When I asked if she’d considered the future of the company,” Leonard started, “she said, ‘Well, I haven’t but I’m certainly glad you have!’”

This response that I’ve seen many times surprised Leonard. As owners age or when they experience a serious health issue as Leonard had, employees aren’t the only ones who begin to wonder “What’s next?” Vendors, lenders and even clients become concerned.

As it turned out, Jen was not interested in ownership, however, one of the financial advisors who had been with the firm for ten years was. Born into an entrepreneurial family, she’d always had the dream of ownership in the back of her mind.

Today, Leonard is following his nephew on PGA Tour and visiting friends and family across the United States. His successor has continued to build the firm by adding new planners and clients to the group that Leonard spent years building and serving.