Now this might be a scary thought if you don’t have a transition plan in place…
According to Australian Government forecasts, over 80% of business owners plan to retire from their businesses in the next 10 years. This will create an oversupply of businesses on the market and you need to be prepared if you want to get the best return for your years of effort.
Harmonious transition doesn’t happen by accident. Business owners who don’t start planning this well in advance of retirement or selling their business are leaving themselves open to stress and chaos for themselves, their family and their staff, and neglect of the situation might well damage the business.
An Evolving Plan
A long term plan is necessary for the family and the owner alike to achieve their lifestyle, financial and business aims. A plan should be in place years before the owner wishes to exit, reduce their workload or dispose of the business.
The following needs to be considered when developing the successful plan.
- When do I want to retire or exit?
- Why am I standing down from the business? (potential purchasers will need a good answer to this)
- Will I want an ongoing managerial role or board position/control?
- Will I want a regular attendance in the business or ongoing role with customers?
- What is my financial position?
If family members are involved in the business and understand the owner’s aims, it is much more likely business momentum will be maintained. Any plan must involve all members of the family, not just those involved in the running of the business. The following needs to be considered in any transition planning:
- Expected exit timeframe
- Why standing down?
- Timing of funding for retirement – ie full upfront payment or ongoing “remuneration” over an extended period? Will the principal be looking to take money from the business to fund retirement? Will the family be able to finance this?
- Timing of transition from seller – buyer
- Is the family represented in the management of the business?
- Are the family members capable or do they need development, training and/or assistance?
- What about the entitlements of family members not actively involved in the business?
- Do management positions need to be strengthened?
- Are there key employees who may be upset/unsettled by the change?
Business owners must ask if the business can function without them.
- Is there a plan for ongoing success of the business?
- Is there a measure of business performance?
- What needs to be done to improve business value prior to sale?
- What state will business be in when owner looks to realise value?
- What kind of buyer does best suit the business?
- Minimum sale price to meet personal goals?
Management and Ownership Transition
Selecting and grooming the successor – options include family members, committee of family members, promoting a key/loyal employee of long standing, recruiting and external executive to manage the family business. From a practical perspective, a single successor usually minimises conflict and confusion.
The following check list will help you determine if you are ready for transition, or whether you should start to work on a transition plan. Remember, the best time to start planning to exit your business is when you start your business. The second best time is NOW.
Even if exiting your business seems a long way off and even though some things are going to change, the fact that transition planning revolves around taking steps to improve the value of your business there will inevitably be some immediate benefits from starting the process:
- More profit
- Higher efficiency
- Greater peace of mind
- Clearer focus
At Inform we work with our clients to ensure all aspects of transition planning are considered and addressed to ensure our clients get the best return for their years on time and money invested.