Building Enterprise Value: Why the Best Business Transitions Start Long Before a Transaction

At a recent Meet Me at the Bar discussion hosted by Davis, Agnor, Rapaport & Skalny, Paul Skalny, Attorney & Managing Director, and Matt Speake, Attorney, were joined by special guest, Steve Prichett, President of Evergreen Advisors Capital, for a conversation about business transitions, mergers and acquisitions, succession planning, and long-term value creation.

Drawing on perspectives from legal counsel, investment banking, and transaction advisory services, the discussion explored what makes businesses attractive to buyers, what issues routinely surface during diligence, and what business owners can do today to preserve flexibility and create options for the future. One theme emerged repeatedly: the strongest transitions rarely begin when a deal appears. They are usually the result of years of intentional planning, disciplined operations, and proactive decision-making.

What Makes a Business Transferable?

Many business owners assume buyers are primarily purchasing financial performance. While revenue and profitability matter, sophisticated buyers are ultimately evaluating something broader: confidence in the future. Can the business continue to succeed if the owner steps away? Businesses that command stronger valuations often share several characteristics. They have diversified customer relationships, reliable financial reporting, documented systems and processes, strong leadership teams, and operations that are not dependent upon a single person.

A useful question for any business owner is this: If you stepped away from the business for ninety days, what would happen?

Would customers continue to be served? Would employees know who is making decisions? Would financial reporting continue uninterrupted? Would projects remain on track?

The answers often reveal where future planning efforts should begin. Beyond financial performance, buyers are also looking for evidence that the business can function independently of its owner. Strong accounting systems, meaningful financial and operational controls, documented procedures, and a capable transition team all help increase buyer confidence.

Business owners often spend considerable time tracking key performance indicators, but a meaningful review should also focus on identifying operational gaps. Is institutional knowledge concentrated in one person? Are customer relationships spread throughout the organization? Is ownership clearly documented? Are key decisions formalized? These questions frequently uncover opportunities to strengthen long-term value.

Value Creation and Risk Reduction Go Hand in Hand

Business owners often think about value creation in terms of growth initiatives, new customers, expanded service lines, or increased revenue. Those efforts are important. However, many of the factors that drive value are rooted in risk management.

A diverse customer base, recurring revenue, dependable reporting, strong margins, and documented business systems all contribute to value because they reduce uncertainty. Likewise, many common value killers stem from avoidable risks.

Unclear ownership records, outdated contracts, unresolved disputes, owner dependence, poor financial controls, undocumented agreements, and informal business practices can all undermine value. During a transaction, uncertainty frequently leads to lower valuations, additional negotiation, escrow requirements, indemnification demands, or deals that fail to close altogether.

One practical takeaway from the discussion was that owners should not wait until a transaction is imminent to address tax planning, governance, compliance, or operational shortcomings. Many value-enhancing decisions are most effective when implemented years before a sale process begins.

Just as important, assembling the right advisory team early can help owners identify risks while there is still time to address them. Good legal, tax, accounting, and financial advisors can often spot issues before they become expensive problems.

The same principles apply even if a sale is never contemplated. Strong governance, sound contracts, effective risk management, and disciplined operations help create a healthier business regardless of long-term ownership plans.

Due Diligence Reveals More Than Most Owners Expect

One of the most common surprises during a transaction is the degree to which diligence focuses on seemingly routine matters. Buyers routinely request corporate records, governing documents, contracts, permits, leases, employment agreements, insurance policies, debt schedules, financial statements, and ownership records. What appears to be administrative housekeeping often becomes a significant focus during negotiations.

Perhaps the most common diligence issue is incomplete corporate documentation. Buyers regularly ask fundamental questions: Who owns the company? Are ownership interests properly documented? Were transfers approved correctly? Do operating agreements, shareholder agreements, and company records accurately reflect reality?

Businesses that have evolved over many years sometimes discover that ownership records have not kept pace with actual business operations. Issues that seemed minor when the company was smaller can become meaningful obstacles when a transaction is underway.

Another area where owners often struggle is disclosure. Sellers naturally want to present their businesses in the best possible light. However, failing to disclose known issues can create significant post-closing exposure. In many cases, issues that are disclosed and addressed during negotiations can be managed through deal structure, pricing, or specific contractual provisions. Issues that are not disclosed may create much greater risk after closing.

The challenge is finding the right balance: providing enough information to allow buyers to make informed decisions without unnecessarily alarming them about issues that are manageable and understood. Successful transactions generally involve transparency, preparation, and thoughtful communication rather than last-minute explanations.

Business Partnerships Require Planning Too

One of the most interesting audience questions focused on a scenario many owners eventually face: what happens when one owner wants to sell and another does not?

The answer often depends on ownership structure and the governing documents already in place. Buy-sell agreements, transfer restrictions, tag-along rights, drag-along rights, voting requirements, and other shareholder or operating agreement provisions can significantly affect available options.

In some cases, an owner may be able to sell an ownership interest without a full company sale. Majority owners may have additional flexibility depending on the governing documents and specific facts involved. From a practical perspective, however, partial ownership sales can be challenging. Most buyers prefer acquiring control rather than purchasing a minority position. As a result, finding the right buyer may be more difficult, and transaction economics may differ substantially from those involved in a traditional sale.

Alternative strategies may include negotiated buyouts among existing owners, recapitalizations, private equity investments, or other liquidity solutions. Each option carries its own legal, tax, operational, and governance considerations. The broader lesson is simple: ownership transitions should be addressed in partnership documents long before owners’ goals begin to diverge.

Succession Planning Is About More Than Retirement

Many owners view succession planning as something that happens shortly before retirement. In reality, succession planning is an ongoing strategic process. Questions worth considering include:

• Who would lead the business if an owner became unexpectedly unavailable?
• Are key client and customer relationships concentrated in one person?
• Are future leaders being developed?
• Does the ownership structure support long-term goals?
• Are family members, employees, and partners aligned regarding the future of the business?

Owners who address these questions early generally have more flexibility when opportunities or challenges arise. Importantly, succession planning should not be viewed as preparation for a single endpoint. A business may ultimately pursue a third-party sale, management buyout, family transfer, ESOP, recapitalization, or continued ownership with reduced day-to-day involvement by the owner.

The goal is not to choose one path immediately. The goal is to preserve options.

The Overlooked Connection Between Business Planning and Family Planning

For many entrepreneurs, the business is both a source of income and one of the family’s largest assets. As a result, business succession planning often intersects with estate planning and family law in ways owners do not always anticipate. Questions frequently arise involving:

• Family succession and ownership transfers
• Buy-sell agreements
• Wealth transfer planning
• Business valuation issues
• Prenuptial and postnuptial agreements
• Divorce involving closely held businesses
• Asset protection planning
• Balancing ownership interests among children with different levels of involvement

For example, one child may work in the business while another does not. Equal treatment and fair treatment are not always the same thing. A divorce or remarriage can significantly affect ownership interests, succession goals, inheritance expectations, and overall planning strategy.

For business owners, pre- and post-nuptial agreements are often less about anticipating failure and more about creating clarity regarding how ownership interests, future appreciation, inheritance rights, and family expectations will be addressed.

These issues are most effectively handled before a triggering event occurs. Once a dispute develops, available options often become more limited.

Industry-Specific Risks Matter

Every industry presents unique value drivers and risks. In the construction industry, project contracts, claims history, bonding relationships, licensing requirements, and dispute exposure can all influence value and transferability. Construction companies should also understand that dispute resolution often looks very different on public projects than on private projects, where statutory requirements can significantly affect available rights, remedies, and procedures.

Likewise, commercial real estate assets, environmental considerations, lender consent and assignment requirements, regulatory compliance obligations, and key contract structures can become material transaction issues depending on the nature of the business.

Owners should periodically evaluate whether the contracts they pursue, the customers they target, and the markets they serve align with their long-term strategic goals and desired valuation outcomes.

Sometimes the Best Exit Strategy Isn’t an Exit

When business owners think about transition planning, many immediately think about selling. A sale may ultimately be the right solution. It is far from the only one. Alternatives may include:

• Family succession
• Management buyouts
• Employee ownership structures
• Partial liquidity transactions
• Recapitalizations
• Strategic investments
• Private equity partnerships

Private equity, for example, may allow an owner to take some value off the table while maintaining ongoing participation in future growth. In other situations, private equity may create governance, tax, or strategic considerations that make another path more attractive.

Likewise, owners often become focused on headline purchase price while overlooking other deal terms that may significantly affect outcomes. Earn-outs, post-closing employment obligations, indemnification provisions, escrow arrangements, financing structures, and tax implications frequently influence the actual economics of a transaction.

The best transaction is not always the one with the highest stated valuation. It is often the one that best aligns with the owner’s broader financial, family, tax, and legacy goals.

The Advantage of a Coordinated Advisory Team

Business transitions rarely fall neatly within a single legal discipline. A transaction may involve corporate law, tax planning, employment matters, estate planning, family law, construction law, commercial real estate, dispute resolution, wealth preservation strategies, and regulatory compliance.

This is one reason business owners often benefit from working with advisors who understand not only the transaction itself, but also the surrounding legal and practical issues that may influence the outcome. The strongest plans are usually developed when attorneys, accountants, financial advisors, and business leaders work together long before a significant transition occurs.

Final Thought