Are you in a business transition—or about to be?

When you hear the term “transition planning,” the first thing that comes to mind may be planning for the sale of your company. The truth is that business transitions happen for many other reasons, and they can happen at any point in the business lifecycle. In fact, a business transition may involve reimagining or reinventing a business so it can stay competitive or shift into an underserved market.

“You might not label it as such, but you could be in a business transition right now—or you may have just completed one without referring to it that way,” says Jason Cagle, head of Industry Specialization and Advisory at Truist Commercial Banking. “But understanding what constitutes a transition—and the most common causes of them—can enable you to optimize outcomes for you and your business.”

By having an ongoing dialogue with you, your Truist relationship manager will help you proactively spot and respond to business transitions, giving you time to explore your options, and offer strategies to meet your goals. Here’s some context that will help you understand the full scope of a business transition.

4 common categories of business transitions

Business transitions tend to start with altering one or more key aspects of your company. These changes typically slot into a few clearly defined categories: planned or unplanned—and wanted or needed.

Here’s how these categories can combine:

1. Planned and wanted, such as an innovation you’ve sought to undertake for growth or survival
2. Planned and needed, such as when supply chain disruption forces you to innovate to remain in business
3. Unplanned and wanted, such as the result of an unexpected favorable event
4. Unplanned and needed, such as when an unfavorable event requires a strategic shift

Sometimes, these types of changes can have only a minor impact on your business. “At the start of COVID-19, a lot of business owners altered processes to deal with it—but when the pandemic abated, they reverted to prior practices,” says Cagle. “If conditions had been prolonged, though, those ad hoc changes could have become central to doing business and fundamentally transformed the structure of their company.”

Fortunately, Truist Business Lifecycle Advisory helps spot when a minor or seemingly temporary alteration could foreshadow a major change. Through ongoing conversations with your Truist relationship manager, your business will receive professional support that helps you take a more proactive stance with transitions—and pivot more quickly when necessary. Even so, it can be helpful to understand how changes can evolve into transitions and what you can do to navigate them as smoothly as possible.

Understanding a business change versus a business transition

Example 1. Let’s say you have a single-facility factory in the early stage of the business lifecycle. You’ve talked extensively with your Truist relationship manager about how and when you want to use excess capital to lease or purchase cutting-edge equipment to increase production. This is a planned and wanted change. If, as a result, you triple your profit margins and need to open a second location to keep up with demand, you’ve technically gone through a transition. You’re now in the growth stage of the business lifecycle.

Example 2. Let’s say you’re an established business and experience a sudden labor drought. As a result, you discuss options with your Truist relationship manager, who has been working with you over the years and in various stages of your business lifecycle. Because they understand you, your industry, and your community, they know that it’s likely these labor issues will not subside anytime soon. After weighing your options, you decide to move quickly to lease cutting-edge equipment that helps you get the job done with fewer employees. This change is unplanned and needed—and can permanently alter your operations.

Summary. In both cases, the fundamental change—an equipment upgrade—is the same. With the former, however, you started out in a more advantageous position. You were able to seize an opportunity because you took action when times were good. This illustrates why planning your transition can be beneficial. In the second scenario, you were able to pivot quickly because you have an advisory team that understands your industry and could generate viable solutions quickly enough to keep your wheels turning and doors open.

Common catalysts of business transition

The type of change that’s significant enough to prompt a business transition is commonly referred to as a business transformation. These are a few examples of significant changes that can catalyze business transitions.

• Scope transformations: An increase in the size of your company to expand its geographical reach^{Disclosure 1}
• Organizational transformations: The hiring, training, and continuing education of employees^{Disclosure 1}
• Business process transformations: An alteration of your company’s core processes^{Disclosure 1}
  
• Information systems transformations: A planned upgrade of communication, e-commerce, data storage, or any other software-based management systems^{Disclosure 1}
  
• Digital transformations: The deployment of digital technologies to reduce costs and improve the customer experience^{Disclosure 2}
  
• Cost transformations: A change in financial practices to reduce overhead through more efficient management of expenditures such as rent, payroll, and insurance^{Disclosure 1}
  
• Leadership transformations: A change in the company’s top leadership or owner (more on this below)

These are only a handful of examples, and other types of transformation exist that can be the source of planned transitions or the response to unplanned transitions.

A deeper understanding of leadership transformations

Of the types of transformations listed, few have greater potential to catapult you into a business transition than a leadership change.

While many view a leadership change strictly in terms of a company’s sale, the category is much broader. Leadership changes can take the form of:

• A succession plan that hands the business over to a relative of the owner at a set point in time
• An unexpected exit or death of the owner or another key executive or leader
• A transfer of ownership to employees
• The replacement of many or all top management personnel
• The replacement of many or all members of the board of directors

According to PwC’s 2023 US Family Business Survey, “To lend stability and trust among family, employees, and customers, succession planning should be considered at every stage of the business.” However, only 65% of respondents said they’ve outlined a clear governance structure, which could include protocols such as shareholder agreements, family constitutions, and wills.^{Disclosure 3}