Succession Planning Ivanhoe
We all get into business for a variety of different reasons and are motivated by different things.
Perhaps it’s the flexibility of being your own boss, you have a great idea that you don’t want to share, you might have taken over a family business, think you are smarter than your boss – so you will try it yourself, or the lure of a big payday appeals.
Whatever the initial reason of getting into business, life often takes a very different course and challenges are a plenty.
Each business is unique, and for some, the income over the life of a business could be appealing. For others which might be very capital intensive or you are building up from scratch, it’s the payout at the end where you finally see some monetary benefit.
For this reason, its really vital to always have one eye on the future and how you will exit the business. Because if there is no one ready to buy your business at the end, you don’t actually have a business, you have a job. You cant sell a job.
So with that in mind, lets consider some of the options:
- Sale to a competitor who wants to get bigger (a trade sale)
- Sale to an existing staff member
- Sale to a family member
- Each have their pros and cons.
- And what are the reasons for a sale:
- Moving interstate or overseas and no longer able to run the business
- Family life stages change
- Loss of interest or passion
- Financials reasons
- Ill health
Some of these can be addressed in an orderly fashion, others are forced upon us. But one thing is for sure, they all need to be planned for. Its only through proper planning that things can run as smoothly as possible when situations change.
Making sure that your accounting records are up to date, are well understood and you have systems in place to allow the business to operate without you are vital when it comes to selling your business. A potential buyer will always be worried how the business will perform without you, so being able to demonstrate that there are people and systems to allow for a continuity of operations will ease their nervousness and also deliver a better sale price for you and your family.
Being able to see off financial stress is also an important part of running a successful business. Using your own funds is always best as you will be more lenient than the banks – remember the ‘golden rule of banking’ – they have the gold and they make the rules. Don’t expect the bank to be your friend when you need them the most, they are not going to go out on a limb and risk their money if your business cannot demonstrate an ability to repay the debt.
Serious illness or premature death are often things that many business owners completely discount – it’s the Superman Syndrome – business owners who think they are bullet proof and it wont happen to them. Unfortunately we have seen this happen first hand on many occasions, and the statistics also paint a sad picture for business owners who fail to plan for ill health or death. Too often a serious health event for the business owner can also spell the end of many successful businesses.
Seeking the joint advice from our accountants and also financial planners can easily address this though. Through an appropriately structured suite of insurances, all of the health related scenarios can be addressed.
Whether it be: Life Insurance, Total & Permanent Disability or Trauma insurance, Income Protection or Key Man cover and even business overhead insurance, there are plenty of options available to safeguard you and your business from a health related disaster.
This is where succession planning and a documented buy/sell agreement can be of utmost importance, and its never too late to do one if you don’t already have a plan in place. If you have business partners, having jointly arranged insurance and trigger events in a formal buy/sell agreement avoids any nasty surprises or disappointment. We often make recommendations and work together with business owners and their lawyers to draft up appropriate buy/sell agreements.
Now, when it comes to selecting a buyer, for some – its all about price. Others want to make sure any remaining staff are looked after and may be more interested in ‘cultural fit’. A sale to a family member might make things easy, but what about other family members who are left out, or is the right price obtained or do you offer more attractive terms. Family sales can also be problematic, often parents step back into businesses if things are not working out. Or they vendor finance and can miss out completely if the business falls on tough times.
Is there already someone within your business who you think might be ready and able to step up & buy you out, or is now the time to bring someone into the business so that you can groom them for succession.
Could a long and drawn out public sale cause your business financial difficulty. Your customers may not understand or be reluctant to purchase while there is uncertainty over who they will end up dealing with. Can your business sell on the quiet and still get a good value?
You owe it to your family and yourself to get the best possible price for the sale of your business, so please talk to our team in Ivanhoe near Melbourne today about documenting and planning your business succession.