Businesses urged to think about Succession and Exit Planning "at their peak" 

Small business owners have been advised to devise an exit strategy while their business is doing well and while they have the energy and enthusiasm to make the appropriate changes.

Succession Plus, a provider of advisory services and project management in business succession and exit planning, said it is important for businesses to start thinking about the important matters while they are still "at their peak".

"Many business owners are finding it hard to keep up with technology and the new competitive environment that brings. If you feel defeated and lose market share, your business value will diminish, so start the process when you still have some fight and passion for your business."

Succession Plus reminded businesses that they may need to grow their business to make it more attractive to a buyer, or they may need to gradually transition client relationships to a general manager.

"If you start preparation early, you will get a deeper understanding of the potential value of your business, and have the time to make positive changes to increase your chances of a good sale.

"On a financial level, a well-planned business exit will not only enable you to attract a higher sell price, it will also let you minimise tax on the proceeds, using staged payments, superannuation contributions and taking full advantage of tax concessions. If you put your business up for sale suddenly, you may be met with a tax bill just when you don't need it."

The succession planning adviser also emphasised how important succession planning will become in the next decade – with the expected retirement of many family business owners and the transfer of approximately $1.6 trillion in wealth.

"Yet incredibly, despite 61% of business owners surveyed admitting their businesses are not sale or succession ready, 52.2% do not intend to do anything about it over the next 12 months," Succession Plus said, a finding mirrored by BDO's family business wealth report earlier this year.

Further compounding the lack of business owners' preparedness for retirement is the fact that 65-year-olds today can expect to live up to 86 if they are men and 89 if they are women.

"As any financial planner will tell you, the average amount needed to fund retirement in Australia is at least $1 million. We are living longer than ever before, and lift expectancy is constantly improving, so we need more money to fund a long retirement – unless of course we wish to rely on a government pension."

Drawing upon data in RMIT's Australian Family and Private Business Survey in 2010, Succession Plus said almost half of business owners see themselves working in the business beyond 65 years of age. More worryingly, over 30% said they intend to rely solely on the sale of their business to fund their retirement.

As a result, baby boomers were found to be delaying retirement because the value of their nest egg had diminished in the aftermath of the global financial crisis. With estimates of 50,000 businesses for sale each year for the foreseeable future, Succession Plus predicted the small business market may become flooded, which will put further pressure on business values.

Matters become worse if a business owner has to exit their business unexpectedly due to poor health or personal issues.

"A poorly planned or poorly executed succession will often lead to dispute, poor customer experiences, business decline and financial pressure. Is that what you have worked all these years for?"

Please contact this office for further information in relation to succession planning.
 
Source: Taxpayers Australia Inc. Thursday, 5 December 2013 Article by Sonia Nair