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The Four Stages of Business - Stage 4: Transition

Creating a business that is bigger than its owner does not happen by chance. It is the result of intentionally moving through the four stages: The Grind, Delegation, Sweet Spot and Transition. Here is a look at the important considerations to perform well in stage 4: Transition.

The Transition stage of business is focused on ensuring the company continues to thrive when the founder is no longer involved. This may happen when the founder wants to retire or start a new business. It is a bittersweet stage full of emotion for both the founder and those in the organization who will be carrying on the business.

Ownership of a business can be passed down to the children of the founder, handed to one or more employees or sold to outside third parties. In all cases the following preparations must be made.

1. Communicate the heart of your business to the new leadership. If the new leadership is going to be successful, they will have to run the business with as much drive and passion as the founder.

They will only do that if they can catch the heart of why the business exists.

Consider the owner of a gas station franchise. If the owner does not communicate well, the new team may think that the business exists to sell gas; when in reality the business thrives because the owner is working hard to provide travelers with the fuel and food that is essential to allow them to carry out their work and enjoy memorable road trips. The why in this scenario is the key that brings creativity and direction to the owner and without clear communication of this element of the business the new leadership will not be able to continue to operate with the same success.

2. Manage expectations. Will the new owner pay full price for the business or is it an inheritance or gift? How will it impact the feelings and inheritance of other siblings if the business is passed to one child at a discounted rate? Is ownership going to be passed all at once or gradually over time? Managing expectations early on in the process will prevent emotional blow-ups and relational damage when it comes time to pass the business on to the new leadership.

3. Equip the new team. Passing on a business before the new leadership team has the skills and knowledge they need to run the business will only result in frustration and failure. If the team is not ready consider delaying the sale, finding a different leader or staying involved as a consultant for a few years after the sale to ensure the transition goes smoothly.

4. Consider the cash flow and tax implications. Are you selling the assets or the shares of your business? Do you need the money now or will you want to receive it slowly over a number of years? The tax and cash flow implications can be significant. Ensure you speak with a professional about the structure that is best for your situation.

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