A California producer said it all in his comments before a seminar. His neighbor asked, “When are you going to become the copilot or even the passenger in your business?” His point was not to wait too long before you begin to hand over the reins, responsibilities and ownership. He further stated that he was stubborn and felt he was going to live forever. His neighbor's blunt question prompted him to get the transition process started and was a constant reminder to make sure that it was completed. 

A subtle, but important, part of business transition is to make sure the business is profitable. Often, profitability is measured by tax records that are designed to reduce income taxes or, in many cases, generate losses through revenue, cost and depreciation adjustments. It is very important to do an accrual-adjusted income statement to provide a more accurate assessment of true profitability. Accrual adjustments consider the changes on the balance sheet for inventory, accounts receivable, accounts payable, prepaid expenses, accrued expenses and supplies. Studies conducted by both Purdue University and the University of Illinois illustrate that the net income variation between cash, or schedule F tax forms, and accrual-adjusted income statements amount to a 40% to 60% difference. 

A kiss of death is when the younger generation obtains an asset base that is not “up to snuff” from an efficiency or competitive standpoint. To compound matters, sometimes significant investments have to be made soon after the younger generation takes over when they often cannot afford to do so. Layer on a management culture that is oriented in the past, rather than the future, and one has a recipe for a potential disaster. 

The possible cure for all of these pitfalls is to work with a third-party neutral facilitator or trusted advisor to get the transition process started and to ensure the transition journey proceeds as planned. The question becomes, are you ready?