The best strategy for a business transition depends on what the reason(s) are behind the transition, what type of business is being transitioned, how long the business has been in operation, how profitable the business is and what the assets of the business are, and how many of those assets are being transitioned with the business. Confused yet? Here are a couple examples that might help to frame the issue.
Let's say that you have a hair salon and the business is operated from a leased storefront downtown. You are the only employee, and you have been in business for a number of years and have a good reputation in the area. Transitioning for you in this case might mean selling the business outright. In this case, you would put a value on all the equipment you own along with the rights to the name of the business and maybe something for the good will that the business has generated over time. If a buyer comes along, he or she will negotiate with you about the price and, when you've agreed, the sale transpires.
Another way to transition out of that same business might be to take on a partner. Say you know that you're going to want to retire in five years and you don't want to see the business close. Taking on a partner and gradually transferring the assets of the business to that individual over time will allow you to transition out slowly. It will also offer the incoming partner the opportunity to get familiar with the business operation, the clientele, and hopefully provide time for them to put together a strong business plan that will be relatively easy to finance.
Let's look at another scenario. Say that you own a small bookkeeping business. You run it from your home. You've been in business for quite a while. Chances are that you are not going to be selling your home, and you probably don't have a lot of equipment that is specific to the business. In this case, the assets that the business has are basically the name (assuming that the business has a name), the reputation, and good will. The truth of the matter is that there may not be much to transition in this case. You will have to judge whether or not your clients would react well to being "transferred" to another bookkeeper whom you select. They might prefer to receive notice that you will closing the business and find a replacement themselves.
A key consideration in a successful transition is having a plan. If you want to transfer your business to someone in your family (say, a child or a niece or nephew), the transition will be more successful if you start planning well before the hoped-for transition date (we're talking years, not months).
Finally, a warning about valuing your reputation and client list. Lenders are notoriously conservative when it comes to these types of valuation—and with good reason. While your reputation may be above reproach and your product and service are exemplary, there is no way to guarantee that the same level of service and quality will transfer to a new owner. And even if the new owner is able to maintain the current standard, that is still no guarantee that the customers will continue to patronize the business.
