THREE SETBACKS TO PRESERVING BUSINESS VALUE

Can the business hold its value through an ownership transition? This is a question most don’t ask until it’s too late. While the financial benefits of a sale may be obvious, there are many more subtle ways a business can lose its value after a change in ownership. Discover the three most common setbacks to achieving a successful transition and learn how to avoid them.

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1. Brand equity damage

Call it culture shock or just aftershock, but when a business experiences a change in ownership or leadership, it’s not uncommon to see a shift in employee demeanor — one that can translate to the customer experience. After a transition, internal stakeholders can sometimes feel abandoned or that their employer no longer represents the one they initially joined. This mindset can manifest into very real challenges such as turnover, low productivity or poor customer service — all of which can harm the brand equity that likely took a lifetime to build. But it doesn’t have to be this way.

Fear of creating disharmony often prevents leadership from talking about succession. However, the earlier it’s discussed and made part of the company culture, the easier the transition. When people know what to expect, it becomes more about strategy and tactics. When discussion is delayed, uncertainty festers. Early planning can also shift the owner’s mindset, enabling a focus on empowering leaders and potential successors for a well-timed and smooth transition.


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2. Operational erosion

Many business owners keep a potential sale secret until the ink has dried on a final agreement. Others hesitate relinquishing control or don’t give potential successors a proper trial period working within the business before handing over the reins. Whatever the reason for opaque practices, treating a transition of business ownership like a one-time transaction has very real consequences. Replacing significant players with those who might not understand the intricacies of day-to-day operations can create confusion and gaps in business processes that open the company up to costly missteps.


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3. Unmanageable growth

It may seem counterintuitive to think of growth as a bad thing, but over-expansion can chip away at a successful business. The ambitions of new ownership, whether family or former competitor, may lead them to pursue new markets that aren’t as profitable, borrow unwisely to keep growth at a particular rate, overprice products and services, or simply make poor investment decisions. While it’s difficult to predict what the new owners will do with the business, it’s not impossible to influence their decisions after a sale.  

Companies that address their organizational weaknesses before implementing growth strategies are more likely to be successful. Similarly, taking a transparent approach to the strengths and weaknesses of the business during a potential sale can help frame any future growth initiatives the new owners might adopt. Of course, the most important element to protecting the business post transition is to really know who is buying it. Alternatively, the current owner may consider a partial sale rather than relinquishing full ownership. This will allow retention of some interest and decision-making power.


The secret to ensuring a successful transition and safeguarding the value of the business is — well — not to have too many secrets. Succession planning can be a positive and exciting endeavor for all involved when done correctly, openly and slowly over time. If a transition is on the horizon, start planning your communications strategy. You can begin today with a Texas Capital Bank succession planning expert.

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