By Nicole Azzopardi
20-second summary
- 75 percent of business owners expect to fund their retirement from the sale of their business.
- Only 25 percent of business owners actually have a plan for how this transition will work.
- If your kids are taking over, don’t count on them sticking to your financial plan.
- Putting together a succession team means everyone involved understands the plan.
- Short cuts can be expensive. Invest in a good solicitor, good information and good documentation.
Full story
Whether your plan is to break into a brand new business venture or ease your way into a comfortable retirement, the backbone of any successful succession is a sound plan to help you through the process.
This may be all good in theory, but despite the warnings from financial planners about the risk of selling your business short, very few business owners take the time to consider their grand exit.
According to a study by Certified Practising Accountants Australia (CPA), 75 percent of small business owners expect to fund their retirement from the proceeds of the sale of their business, yet alarmingly, only 25 percent actually have a plan on how they’re going to do it.
Proper planning
Rob Cecconi defied the CPA statistics by planning an exit from his Melbourne-based sports travel company Sportsnet Holidays one year in advance. “I’d been in the travel industry 15 years, and I thought about selling up and doing something else,” Cecconi says.
Enlisting the help of a professional succession planner, Cecconi went through the process of preparing his business for sale. “It took me 12 months to be ready for a buyer to be able to come in and start trading profitably from day one,” he says. “We wanted to show potential buyers the scale the business could reach, instead of focusing solely on the balance sheet.”
“We spent a lot of time in that year detailing the future possibilities for the company, that in the end, added a lot to the value of the business.”
Cecconi sold Sportsnet Holidays in 2005 and has not looked back. “We got exactly what we asked for,” he says. “It was enough for us to pay off our home, set up the children and have some left over to make our own choices. We had a competitive bid process, which allowed us to get the right price. We got those bids because what we were presenting to the marketplace was a profitable business with scale potential.”
Not child's play
One of Westpac’s Business Advisory Managers, Rob Lockhart, says the situation becomes more complex when there are plans to pass the business to your children. “This involves not only working out what your own goals for the future are, but finding out what everyone else’s are as well,” he says. “Somebody might assume they’ve been running a successful manufacturing business for the last 25 years and their children share a similar passion – which may not be the case.”
“Chances are the kids are either going to want to do something different with the money or aren’t going to have the money to pay out Mum and Dad. So, it’s a case of structuring the financing of the arrangement, so that parents can maintain an income stream from the business.”
For many it’s the complexity of the process that causes many business owners to bury their heads in the sand.
According to Lockhart, owners need to step up and take responsibility, and that means taking the time to do the homework. “One of the things that Westpac is doing to fill that knowledge gap is running a Business Succession Planning Workshop where we look at the steps involved to exit from your business successfully,” he says.
The steps include how to value your business, as well as an understanding of the various exit options such as selling, passing it on to a family member, or closing the business down. Westpac also offers customers a succession guide, which is available now.
Lockhart then explains how to put a planning succession team together, which may consist of family members, an accountant, a financial planner, as well as a solicitor. “Don’t shortcut it,” he says.
“Invest in a good solicitor, good information and good documentation. An ounce of prevention is worth a pound of cure.”