On Business Succession and Exit Planning – Part I
Now is the best time to think about business succession and exit planning even if you think it’s still too far away.
Many business owners expect the sale of their business to fund their retirement, with over 30% reliant on it as the primary source. Many are concerned about the level of their superannuation following the GFC and the volatile markets of recent years. Fixed interest is at an all time low and $1m of investment will return you roughly the equivalent of a single pension.
With so many business owners in weak financial positions looking to sell, and a lack of cashed up buyers in the market it’s more important than ever to plan your business exit to extract the highest possible value. You have to get your business investor ready and you can’t just start to think about it when you turn 64. If you don’t plan, you get a poor price.
But if you do put a good succession/exit plan in place it’s a win-win for everyone. You get the best price, the buyer gets a good business and your customers and staff are looked after.
Remember, you are going to be competing with an enormous amount of businesses in the market place. You have to be the stand out option. It is estimated that over 50,000 small business owners will be looking to ‘exit’ each year though sale or passing it on to the next generation.
Only 20% of all of the businesses listed for sale ever sell.*
90% of all of the people who begin the search to buy a business never complete a transaction.*
These US small business sales benchmarks* would apply equally to the Australian small business market.
Ask yourself these questions:
- Do you have a valuation/sales price in mind?
- Is it realistic and has it been determined by an independent professional that can cut through the emotive issues?
- Do you know what your business value needs to fund in terms of personal/financial goals?
- When do you want to leave the business?
- Are you happy to do a staged exit over several years?
- Could you consider vendor financing or prefer a lump sum?
- Do you want to retain any ownership in the business?
- Are you thinking of transitioning the business to a family member?
- Do any key members of staff have an interest in taking ownership of the business?
- Is there a potential interested buyer?
- Do you have a view of what the business will look like after you retire?
- Are you interested in leaving a legacy?
Too often I see business owners hanging in too long, particularly when business profits begin to experience downwards pressure. You need to be monitoring your business value constantly.
I’m currently working with the Directors of an exceptionally well run and profitable business who first came to me five years ago for asset protection and tax planning strategies. At the time I valued the business at $7m. They contemplated selling but procrastinated until recently when they asked me to help them take the business to market.
My new valuation has the business at $4m! That’s a $3m reduction of capital value attributable to the economy but more importantly to procrastination.
On Part 2, we will discuss how to approach potential buyers and more.
If you have questions about business succession and exit planning, contact Acvisory now.
General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.