There comes a time in every business lifecycle when succession comes more sharply into focus. Whether you’re planning on selling, passing the business on to a family member or winding up, succession planning takes time.
While every business is different, there are five fundamental steps that we as accountants and business advisors discuss with our clients for achieving their succession goals. In this article, we review the succession insights and key business matters you’ll need to consider.
Step 1: Explore your situation
Before you get into the gritty details of succession planning, it’s always a good idea to take a step back and look at the bigger picture. This step is about providing a sounding board for exploring your situation, your motivation for sale, your goals beyond being a business owner and your timeline. In doing so, we help you to eliminate the grey areas and the what-ifs, including how much you should realistically expect for your business or whether it’s actually sale-worthy.
Step 2: Analyse your business
If you plan on selling, your business will need to stand up under the scrutiny of a potential buyer. During this stage, we help you analyse your business and identify matters that may cause value gaps, or how you could capitalise on opportunities or mitigate problems that could add considerable value.
For example, there may be aspects of your business that may not represent your core business operation that need to be explained or dealt with separately. Similarly, making your business more saleable may require other activities such as implementing system improvements or discontinuing unpopular or expensive to produce product lines.
Step 3: Advance planning
Whether you intend to sell as soon as possible or some years down the track, advance planning allows you to focus on those matters that crystallise the value of your business in the eyes of a potential buyer. Businesses commonly take 12 months or more to sell. Making your business ‘sale ready’ brings a range of rewards, among them efficiencies that can create more profit for you to enjoy now, while placing you in a stronger position for negotiating a sale on your terms when a sale opportunity presents.
Step 4: Implementing your succession
While selling your business can take time, so can handing over to family or staff members. This will involve agreeing to terms that usually include finance arrangements and deciding how and when you’ll actually exit the business.
Winding up your business affairs can also take time. You may need to honour current agreements through to completion or negotiate with clients if you have any change of control clauses in place. You’ll also need to carefully manage your cashflow as your revenue reduces while continuing to meet any operational requirements including staff wages, redundancy payments, rent and other costs until you finally turn out the lights.
It’s during this stage that we advise business owners to continue to drive their business to retain its sale value, particularly if they are tired or worn down.
Step 5: Exiting your business
There may be a number of options available for exiting your business and we will work with you to determine a process that’s right for you. Tax planning measures, including managing any capital gains tax obligation and how and where proceeds from the sale are distributed, are considerations central to the process of succession. Tax will also affect winding up a business.
In our experience, successful succession that reflects the value of your business and within a predetermined timeframe requires realistic advance planning. As mentioned earlier, selling can take years, and there are often false starts along the way. Buyers who look promising can fizzle out and leave you disappointed, especially if you’ve been led to believe it’s a done deal.
Impatience rarely garners the best outcomes, hence it’s important to be prepared and realistic in your endeavours.
There is currently a lot of business succession activity. Good businesses are being sold, providing opportunities both for sellers and buyers who may be looking to become business owners for the first time or for expanding their existing enterprise.
We are experienced business and tax advisors able to guide you through business succession, sales and acquisitions and address other important considerations such as tax effective structures.
If you need advice about this or any of the other topics we write about, please do not hesitate to call us on (07) 5438 8088 or email mail@corebusiness.com.au.
Core Business Accountants specialise in business advice for growing and mature family-owned and small and medium-sized businesses.
