What To Know About Business Transitions

Why is it Important?

Business transitions can be extremely impactful. The implications of a transition—whether through a sale or a change in leadership—can be quite profound. With proper planning, disruption can be minimized and value preserved, if not maximized.

How to Start

A key step in developing a business transition plan is clearly defining your personal and business goals. Consider your financial objectives and how long you want to remain involved in the business after the transition. Additionally, once the decision is made to transition in some capacity, the plan should be formally documented so everyone involved is aligned.

Who Should be Involved?

When organizing a business transition, your full team of advisors should be included. This may consist of your accountant, attorney, financial advisor, banker, and potentially consultants such as management or transition specialists. These professionals help ensure that all aspects of the transition or sale run as smoothly as possible.

What Do You Need?

When selling or transitioning your business, a key document is the Sales Agreement, which outlines everything you intend to transfer—such as assets, book of business, and other applicable items. Depending on the size of the business, you may also need to demonstrate that the business can remain profitable without your direct involvement.

Define the Process

Selling or transitioning away from a business involves many steps. It is essential to define the process, assign responsibilities, and set an expected timeline. Speaking with employees who will be affected can also provide valuable insights and help minimize potential disruptions.

How Long Will it Take?

Depending on the type of transition—for example, a sale or new leadership—the time needed to execute can vary from as short as one year to ten years. Sales often move more quickly, while leadership transitions can take significantly longer, as they require training and educating those who will assume leadership.

What Are the Implications?

A business sale can have a variety of financial implications, such as capital gains taxes or ordinary income taxes. Additionally, any assets that have been depreciated will be subject to recaptured depreciation, which is also taxed as ordinary income. There are different ways to structure sales, some of which can spread the tax liability over multiple years. Any tax implications should be carefully reviewed with your tax professional.

How Do You Value Your Business?

When determining a business valuation, there are several factors and methods to consider. One approach is valuing the business based on its assets. Another is discounted cash flow, which considers projected future earnings. Earnings before interest, taxes, depreciation, and amortization (EBITDA) is another common method. To determine the best approach for your business, consult with an expert such as a broker.

Define The Goal

Like any important objective, you need to clearly define what you hope to achieve with the transition. This may involve maximizing valuation and monetary compensation, or it may mean selling to a person or group that will continue operating the business in a way that aligns with your vision.

Please reach out to Harding Financial Group with any questions. We are more
than happy to answer any questions you may have.

Harding Financial Group
614-515-4722
608 Office Parkway,
Suite A; Westerville, OH
43082-5900

Harding Financial Group is a registered investment adviser. Information presented is for educational
purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific
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are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional
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