The time may have come for you to start thinking about transitioning your business, so what’s next?

What you might come to realize is that while you’re busy running your business, you find you’re in need of some to help guide the transition team down the field for the eventual score. Moreover, how big will that score be?

“We come in as a quarterback or coach, to get these business owners prepared,” said Matthew Langsford, senior portfolio manager and senior investment advisor at Canaccord Wealth Management.

“If we get in early enough, one of the key deliverables will be to assess whether or not the current professional team has a background in exit planning.”

While wealth managers tend to get involved downstream in the business transition cycle, Canaccord is able to step in at the outset of exit planning in an M&A advisory role while also providing the wealth management component.

Langsford said the sooner he’s brought in, the better.

“Often, we’re brought in later in the process, but that’s a little more challenging. The toughest part is when you’re introduced right after the sale.”

While assembling the right team, such as M&A advisory, legal, accounting, wealth management, etc., is crucial, Langsford said the coaching he and Canaccord provide also includes reviewing with the client what’s ahead and where they ideally want to be.

“It’s a coaching exercise.  One of the biggest challenges is [business owners] don’t know what’s ahead. They don’t understand all of the different moving parts, not only from a valuation standpoint, but a personal standpoint, and, financially, where they sit today.”

“We call this the Wealth Gap — what a business owner needs. We give them something to run towards, and not run away from.” There are three legs of the stool: financial readiness; the business itself, making sure they’re not leaving money on the table; and the personal journey — their post-sale life,” Langsford said.

We also do The Profit Gap. We plot utilizing a database of businesses that have sold within a certain market category. This can, for example, mean the difference between 8x vs 6x EBITDA, depending upon the valuation level,” he said.

“Our job is to get business owners to an informed decision about that fork in the road,” Langsford said, “and this can manifest in various ways .”

“As a family enterprise advisor, there are always going to be some issues at the family level,” he said. One such example was a first-generation family founder with $40-$45 mil in sales, and profitable.

“[The founder] had three kids entering their late teens, early college years. In this situation, having his kids take over was not in the cards. It wasn’t a fit. So we worked to establish more of a family enterprise to re-invest the family capital, including a charitable trust with some favorable tax structuring that really got the owner excited,” Langsford said.

Once the business owner was aligned, the transition team figured out the financial calculations on the wealth gap, determining how much the owner needed. The solution was to sell approximately 70 percent of the company. The owner rolled his equity over, retaining about 22 percent and de-risking his personal balance sheet.   This ensured he would be set for the rest of his life with a private equity partner to grow the business with their money, Langford explained.

“He moved from the CEO role to more of a chairperson role, and he quite liked it. Fast forward to December of last year, and he exited completely. They were at $95 mil in sales in just over four years. The owner has since gone from chair to outside consultant,” Langsford said.

“He has more time for things like the charitable portion now that he’s a consultant and not running the business. This ensured that even though his kids weren’t joining the family business, he could set up a plan for them to become entrepreneurial. His son came to the family a month ago to buy a gym business.”

This approach doesn’t need to work for everyone, Langsford said.

“We have another client who sold the business, distributed the capital, and that was it. One generation and done, and that’s fair, too. The business will often represent 70 percent of a person’s wealth.”

Langsford said the self-awareness exercise — getting past the guilt — is key.

“Having the conversation with kids, this is the plan. We have a client in this situation where the son is a lovely guy but was given money to run a business and into year nine was losing money — and he’s never taken a salary. We weren’t in early enough with them to go over more of a business plan.”

So why not start planning sooner?

“Fear of the unknown, Langsford said. “[Business owners get] so wrapped up in the business, the financial security part, and the fear of ‘who am I outside of the business?”’

However, it’s going to start getting trickier on the road to business transitions for family-owned enterprises. In particular, Langsford described a “succession tsunami” coming to both Canada and the U.S., in proportions of $2 trillion and $14 trillion, respectively.

“Baby Boomers were the most entrepreneurial generation of our time,” Langsford said, and with so many of them retiring now, there is massive wealth, or value, locked up in private illiquid businesses that needs to be transferred.

“If that doesn’t happen, we’re talking about a major economic calamity,” he said. This is something that needs to be looked at more.”

This could all translate into a much more competitive environment for businesses to sell, moving forward, so how can prospective business owners considering an exit be most strategic? Langsford said it’s going to become even more important to get your house in order.

“Outside of your P&L, you need to defend your value proposition, your human capital, and customer capital. I think this is going to be quite the competition, just to get sold.”