Thursday, September 29th, 2022

Business Succession…Transition…The Rules Have Changed Owner’s Options


Summary: Until recently business owners had many options to exit their business. This has changed for the foreseeable future.  Now they need to approach their business as though they will retain it or be the source of financing for the transition.

Recently, a group of advisors offering diverse services to owners of privately owned businesses were discussing the state of affairs.  We all know that the economic environment is difficult and challenging.  The capital structure has vanished.  Banks are not lending and when they do lend it will be with many stipulations.  Interest rates are down – but still money is not flowing.  Private equity firms are forced to use capital to keep their current investments alive.  Only a few businesses are capitalized well enough to make strategic acquisitions and if they do, they are at bargain prices.  Owners are forced to sell well below their expectations.  It is not pretty, but all owners need to mitigate their risk of transition.  They will not be getting a lot of cash in any near term transaction and they may be forced to finance any transition.

The rules of building value are still the same; however, one underestimated part of the equation now comes to the forefront.  The top leadership team (which was always important) and the depth of leadership / management talent are now critical to the owner.  The owner will have a key family asset being managed by others.  In the past leadership depth was always important, but now it is a necessity for the long term survival and growth of the business entity.  You now have an illiquid asset that will need care beyond your interest or life span. How can you obtain the most options?

The first step is to take a quick look at your direct reports and perform a subjective assessment.  Evaluate each direct team member in three areas: shared business values, productivity and communication with you and others on the team.  Each area can have a maximum score of 5 points as a strong score.  The maximum score of top team members is 15.

  • Once you have evaluated each of your team members take clean piece of paper and place dot in the center of paper.  This represents you as the leader and center of the business universe.  Read carefully the next actions as they may counter-intuitive.
  • The team member with the highest score will be the closest to you via straight line to 12:00. 
  • The person with the lowest score will be the farthest from you represented by a straight line to 6:00.
  • Next draw everyone else in the same manner relative to their scores which fall in between the highest and lowest scores in other straight lines to you in different positions around the clock. 
  • Finally, after all your team members are placed in their relative positions draw a circle with you at the center representing an acceptable culture line.
  • Note those team members which have fallen outside of the culture line. They are not really on the team.
  • Problem solve why certain members are outside of the acceptable culture line. 
  • Develop a plan to improve your team.


There are many reasons for someone to fall outside of the culture line.  Certainly one could be performance in that they may have been placed in a position where they are not productive.  Where communication is an issue, you may not have spent quality face time with certain team members and you have drifted apart.  Another possible cause is: the job has new requirements which the incumbent is not equipped to fulfill. There are many other possibilities.  It could be that you have too many direct reports and this prevents you from building a team.  Every situation has its own uniqueness. 

If the new rules of transition require greater depth of strong leaders, this is the first step. The purpose of this exercise is for you to take the initial step to determine how much work is ahead of you and then begin to make incremental improvements over time to strengthen your depth of leadership talent. The benefits to you are many.

  • Peace of mind as you step away from the day to day
  • Sustained financial health for your business
  • A higher evaluation when buyers eventually return to the market
  • The ability to purchase at a bargain additional markets via acquisitions
  • Remain in a strong bargaining position with the most options
  • More comfortably take back financing with an employee or generational buyout


I do not know of any great organizations without depth in great leadership talent.  These organizations see a difficult economy as offering opportunities.  Great leadership is able to discover, develop and maximize talent to make the opportunities a reality.     

For a free confidential discussion of your findings please email: and request “Owner Succession Team Discussion”

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