Each business and business owner follows its own path, but certain steps can achieve a more successful outcome.
Recently, I had the chance to reconnect with a former client whose business I had helped sell. We reflected on his and his company’s journey, from the initial concept to the eventual sale many years later. That conversation shifted my perspective: from viewing a business purely as an operation to seeing it as a meaningful journey. As you read this article, I encourage you to think about your own journey and that of your company. For some of you, it may span multiple generations; for others, it might just be beginning. But for entrepreneurs and business owners, whose personal and professional lives often intertwine – or even overlap completely – the journey is about so much more than the business itself.
I’ve been fortunate throughout my career to witness and support the journeys of many business owners. Through this perspective, I want to share how the decisions they made along the way influenced the success of their business transitions. Transitions can take many forms – third-party sales, related-party transactions, selling or acquiring a portion of shares, or passing the business on to the next generation, to name a few. While the types of transactions may differ, they all share common requirements for achieving a successful outcome.
In most cases, companies are valued based on a multiple of EBITDA (earnings before interest, taxes, depreciation, and amortization). Many business owners focus on asking what the current multiples are, but a more important question is: “What can I do to sustainably grow my EBITDA?” While the decisions owners make can influence the multiple, they have far greater control over increasing EBITDA itself. A higher EBITDA not only drives a higher transaction value, but also provides increased cash flow that can be enjoyed or used to reinvest in the business until it’s time to transition the business.
In my experience helping companies through transitions, growth has consistently been a key driver of success, and it has taken many forms. For some owners, growth came through strategic acquisitions that expanded their business and boosted EBITDA. Others achieved it by branching into complementary lines of business. And some transformed their business models entirely, shifting focus from one-time sales to building recurring revenue streams. These decisions were rarely made in isolation. Business owners relied on advisors to guide them along the way. Every owner’s journey is unique, and so is the timing of when they engage advisors. Some begin working with advisors many years before planning a transition, while others start only a few years out. The timing is critical, as certain strategies require a longer horizon to fully realize their impact.
Three types of advisors can have a major impact on an owner’s success: attorneys, CPAs, and wealth management advisors. Involving these professionals early in the process is key, as they can help maximize the amount of money you retain after a business transition. For example, one former client benefited from consulting an attorney who specialized in underfunded pension liabilities, which helped minimize the financial burden. Timing can also be critical, such as when converting a company’s taxable status from a C Corporation to an S Corporation. Other strategic considerations may include establishing a Family Trust or gifting shares to the next generation.
Engaging industry advisors throughout your business journey is essential. Their objective, third-party perspective can provide meaningful insights into your operations while uncovering opportunities to improve efficiency and profitability.
Having valuations performed on a regular basis not only establishes the current value of your business but also highlights operational improvements that can drive additional growth and increase overall value. The business owners that had a valuation performed several years prior to transitioning the business provided them with time to implement initiatives that directly impacted their value. An additional benefit to performing routine valuations is knowing the type of information that will be requested and developing the process to get accurate reports and information in a timely manner.
Certain circumstances, such as changes in ownership structure, tax status, or mergers and acquisitions, make business valuations especially important. A valuation can also help business owners understand evolving tax regulations and their potential impact on the acquisition market.
It may seem straightforward, but maintaining clean tax returns and accurate financial statements is critical. Your financials should properly reflect asset treatment and align with your internal reporting to present a clear and reliable picture of the business. Real estate and any concerns surrounding ownership, valuation, leases, surveys, and environmental can impact the timing and success of a transition.
As with any journey, the path is rarely straightforward. Knowing when to change direction, when to ask others to walk alongside you, or when to seek new advisors is all part of the process. The decisions made along the way can ultimately reshape the destination, as they did for my former client.
The client I reconnected with had built his business with the vision of creating a lasting family legacy to be passed down through future generations. However, the decision to pursue growth through acquisition transformed the business in ways that led him and his family to choose a different ending to their journey. Exiting the business was never part of the original plan, but in the end, they knew it was the right path for them.
Tamera Kovacs is a Director at Cetane Associates, specializing in M&A advisory to the retail propane/delivered fuels industry. She can be reached at 913-634-6654 or tkovacs@cetane.com.
