Author Stephen Covey coined the phrase “begin with the end in mind” in his book, “The Seven Habits of Highly Effective People”. This approach is critically important when it comes to planning for a business transition.
Every owner must acknowledge that their transition plan is a three-legged stool – the business leg, the financial leg and the personal leg. Thinking about the personal leg first is beginning with the end in mind.
Leg #1 – An effective personal plan forces you to identify what you will do with your life after the business is no longer a part. This includes identifying the lifestyle you want to live.
Leg #2 – An effective financial plan must specifically define what it will cost to live the lifestyle identified in Leg #1. This is often a difficult task for owners since they run many personal expenses through the business. These must be accurately accounted for. Income must be generated from the owner’s assets to cover all these lifestyle expenses. An inventory of the available assets must be completed along with an asset management strategy.
Leg #3 – The business plan. Once the first two legs have been developed then and only then is it time to focus on the business plan. The business often represents 80-90% of an owner’s net worth. It is therefore critical to maximize its value so that, post transition, the proceeds can provide adequate funding for Leg #2 and Leg #1.
Success in a business transition requires the owner to commit time to his/her planning well in advance of the targeted transition date. It must be a coordinated team effort involving all stakeholders and advisors working together. Successful implementation of this three-legged approach is what I call a Master Plan.
FPA Owner Transitions 