Preparing for a business transfer is a long and complex process that can entail many difficulties and because it is rarely a process that an owner undertakes more than once in their life they will likely be very vulnerable to making mistakes or errors of judgment that can substantially influence the final amount they take away from the sale.

The complexity of the issues and the owner’s lack of experience - of who to contact for help, of where to find information- can impact down the line in the form of unnecessarily high inheritance, estate and gift taxes, unsatisfactory due diligence results, delays in changes to the legal form of the business just when preparations are being made for its transfer, and a lower than expected valuation of the business among them.

Successful transitioning is best achieved with a firm of transition specialists to ensure coordinated action in the planning and management of the different phases of the process. They can offer informed advice to the owner about the different options that will arise.

Coordinating and managing the respective contributions of a range of advisors over the period of the sale becomes a task in itself involving:

• Agreeing and documenting the specific instructions given to each Advisor
• Establishing the fee basis for each advisor and ensuring it is clear and in writing
• Avoiding overlapping responsibilities among the advisors
• Knowing when a second opinion is necessary
• Arranging the lines of communication and ensuring each party knows its responsibilities for dealing with inquiries
• Getting key items of advice confirmed in writing

Frequently this level of project control is beyond the capabilities of the business owner himself so retaining a transition manager to organize the arrangements and act as their advocate in dealings with the various parties is their best strategy to safeguard their own best interest.

Given the number of professionals that need to be consulted for advice on different matters at different times along the way the actual logistics of transitioning can become complicated. David Henderson, principal partner at the ROCG Chatswood office and CEO for ROCG Asia Pacific, sees the issue in terms of ensuring coordination:

There’s the added advantage here of leaving the owner free to continue concentrating on grooming the business for sale. At just the time when the business needs to be well run and demonstrate profitability, it is dangerous to take your eyes off the main game, which is improving the value of the business prior to sale.

David instances the case of a giftware importer who utilized his advisor to release information to prospective parties and carry out preliminary discussions with prospects. The prospect was only introduced to the seller once considered qualified. This allowed the owners to continue to focus on the business and ensure its value was maintained rather than concentrating on the sale process / transition aspects. In certain circumstances using the transition manager as a buffer between the seller and potential buyer (or other succeeding party) can contribute to maintaining good relations between them and keeping the deal on track.

The buyer/seller relationship isn’t the only one that can come under pressure during transition. Negotiations between partners or family members can be tough and often lead into disputes that create bad feeling.

Family businesses, which usually involve a lot of stakeholders, are particularly vulnerable to misunderstandings and differing points of view becoming entrenched positions that can cause permanent rifts. “It’s important to ensure that family members are all comfortable with the plans of the parents and that those who do not work in the business, as against those who do, are fairly allowed for in any transition plan that occurs”, says David.

Having a transition manager can save money as well. Where meetings take place between the several advisors such as a lawyer and an accountant, especially if they are dealing with each other directly, there is a tendency for meetings to drag on at the owner’s expense. Having your own advocate at these meetings to keep things focussed and moving, as well as to keep you informed and provide explanations, is important.

Essentially a good transition manager is a mentor who understands the transition process and the roles of the different specialists who need to contribute information and advice along the way and can coordinate the whole process effectively by assigning responsibilities and coordinating activities and work flow.

A transition manager should be able to offer an integrated service for transitioning your business that includes covering all phases of the process as well as offering advice and explanation along the way so as to provide complete project management of the transition exercise.