Whether you’re getting ready for retirement, just starting out in the leadership of your business, or are considering an ownership role in your future career, the best thing you can do to prepare yourself and your current or future business for success is to build a relationship with a commercial banker. Two of the most […]
Whether you’re getting ready for retirement, just starting out in the leadership of your business, or are considering an ownership role in your future career, the best thing you can do to prepare yourself and your current or future business for success is to build a relationship with a commercial banker.
Two of the most common types of business succession are the sale of a business or an internal leadership change. Internal leadership changes are most common in family businesses. I’d like to take a minute to recognize the impressive work that goes into starting, running, and continuing the legacy of a family business. This is no small feat, and that’s why NBT Bank is the presenting sponsor for the 4th annual Family Business Awards of CNY on Dec. 4, 2018, produced by BizEventz.
Even if business succession seems far in the future, if you don’t have a succession plan and a successor (family member, current employee, or outside party) identified, it’s important to start thinking about it now.
Your commercial banker is an excellent place to start if you are a current business owner. Your banker has access to a team of financial professionals at his or her bank that can take the necessary time now to understand your current financial position as well as your goals for retirement and business continuity. This team will then help you build a plan that considers timing, financial needs, ideal sale/purchase terms, and the continued legacy of your business.
If you are on the other side of the succession equation and are planning to take over a business-ownership role, then it is even more critical to build a relationship with a commercial banker as soon as possible. To best position yourself for an optimal purchase structure and to ensure you are able to secure the necessary funding for the purchase or buyout of a business, your bank will need to get to know you, see your personal financial history, review your business plan, and understand your goals for the future of the business.
While many people only think about the initial loan from a bank that may be required to purchase a business, the most successful business leaders are already thinking much farther down the road. If you are planning to buy into an existing company, then you should also be talking with your commercial-banking team about how you plan to finance operations, banking products to support cash management and employee services, as well as plans for future growth.
There is a lot of information that will be required to prepare for that first meeting. Among other things, a bank will evaluate and help new owners to consider the following questions:
• What connections, management, and other attributes did the prior owner bring to the business?
• How reliant is the business sustainability upon the previous owner?
• What is the expertise of the people who are staying in the business to help ensure continued success?
• Is there a non-compete agreement and/or management contract with the prior owner?
• What was the last owner taking from the company via salary and benefits?
• Is the projected annual loan servicing that is being taken out to purchase the business offset by what the prior owner was taking? (The goal for the new owner is to not exceed the amount of his/her annual loan payments to what the previous owner was taking out of the business.)
• How many new owners will there be? If there will be more than one owner, what is their strategy for managing and decision-making?
We have worked with plenty of current and potential business owners who work hard to make sure they consider all these components for their business (and personal) success. We have also seen many who are not nearly as prepared as they thought they needed to be. It’s important to discuss with your bankers the myriad scenarios involved in local business transitions so you can set up the company for long-term sustainability.
Richard Shirtz is NBT Bank’s regional president serving Onondaga, Oswego, and Cortland counties. He is responsible for NBT’s commercial banking business and geographic oversight of all other area business units. Shirtz joined NBT as part of the bank’s acquisition of Alliance Bank in 2013 and has more than 30 years of commercial-banking experience.