Business Succession | Big Deal !
Have you considered:
- Baby boomer business owners are retiring in increasing numbers, analysis shows that more than 1.4 million businesses employing upwards of 7.9 million people and contributing almost $500 billion in GDP will be sold or close their doors when the owners retire in the next decade. Source: PWS Australian Website Research commentary
- More than 85% of SMEs when they do sell go for less than half of the owner’s perceived value.
- It is estimated that more than 75% of family business owners do not have an exit plan even though it is in the top three items on their mind. Source: Australian Bureau of Statistics
So business succession is a “Big Deal” and not just for SME owners but also the wider community and economy in general. It’s not sufficient anymore for owners to just hold on to a vague notion of selling at some undefined value, at some unknown time, somewhere out there on the far horizon. This is why so many are disappointed when the time comes to move on or retire, with evidence showing that only 15% of businesses sell for anywhere near perceived owner value.
Why is that the other 85% either close their doors or are purchased for less than half of what the owner thought they were worth, these are pretty dreary facts, that could so easily be avoided with a bit of specialised advice. “Start with the End in Mind” said Stephen Covey.
Maximising the value of a business involves focus, planning and process and it also takes time and it takes patience, discipline and commitment. Without assistance and independent advice it can be hard for SME owners to achieve a real return and a realistic sale value compensating them for year upon year of their hard work. For many there is also the close connection to their staff and employees with owners wanting to make sure they are well looked after once the owner has long gone. Many owners are time poor, overworked and deeply involved in the business, rarely getting the opportunity to rise above and see their pride and joy from a different perspective.
We all know having a plan is vital and a focused, well thought out Succession Plan can protect what you’ve already built and make sure that at the right time, the right assets, go to the right people and most importantly at the right value. Additionally with planning, process and advice a successful SME can continue to trade in perpetuity providing a vital economic and community asset with services and products for the benefit of all.
So what are some of the things that can trigger Business Succession thinking ? Well there are two main categories, both Planned and Unplanned Events.
Departure due to retirement
Desire for difference
Sale to co-owners / management
Transfer to family
Any quality Succession Plan includes attention to all of the above and more.
I’m a great believer in abundance, so in the spirit of sharing, I’ve listed below a checklist of the items we explore in the Discovery and Investigation phase of our advice process…
- Key person dependancy
Saleable type business review
Financial ratio analysis
Past and projected cashflow and profit and loss
Business owner’s agreements
– Pre-emptive rights /
– Rights of refusal
– Due diligence buyer’s eyes
– Debt guarantees
– Employee work contracts
IP rights, patents and trademarks
Business valuation methods
Capital gains tax Div115, Div152
CGT damaging effects ?
Constitution / trust deeds
Buy / sell agreements
Ownership structuring issues
Asset & revenue protection
Key person insurance
Documented business processes
Business formal valuation methods
Insurance cover to fund buyout ?
Funding buyout arrangements ?
Superannuation tax on payouts
Revenue replacement insurance
Annuity / service trust income
Beneficiary undistributed present entitlements
Loan accounts ?
Other Estate asset ?
Business secured debt payouts
Loan to service trust at call issues ?
And Yes… there’s more, it’s much deeper though… because this is just the discovery and investigation phase yet to us it’s the first vital step in forming a strong platform as we then begin to implement our proven process to achieve your long term succession dreams and goals. Without specialist help and assistance most SME owners never get an opportunity to even touch on these areas of their business… our view ?… don’t let this be you.