Although the baby boomers are increasingly heading towards retirement, a recent survey revealed that less than 20% of the owners of Small and Medium-sized Enterprises (SMEs) have any formal strategy in place to address their exit from the business.
What’s particularly surprising about this, is that to be successful in business, planning is essential and consequently owners normally approach this as part of the management of their business. They must ensure that the business has sufficient resources…financial, human and physical.
So why do business owners have no formal succession plan in place?
Perhaps it’s because they’re focusing so much on the present and running their business, while also addressing the increasing threats which are apparent in modern business.
Having a plan is crucial
It is vital that to prepare for the successful transition of your business, whichever path you choose, a three to five year period is necessary. Having a suitable succession plan will not only enable you to maximise the selling price, but also minimise the tax on the proceeds.
What are the considerations?
- Do you want the business to continue operating after you leave?
- How key are you to the business?
- What is the current value of the business?
- Do you have children with the desire and capacity to take over?
- Are you looking for a gradual or immediate exit?
- Is the business stable, growing or shrinking?
- What do you plan to do following your exit from the business?
Getting maximum value
Apart from preparing the business for sale, one of the most important considerations when selling your business, is tax. Careful planning is required, and if handled correctly, there is the possibility that the business can be sold tax-free.
Small Business CGT concessions can substantially reduce, or possibly eliminate, tax payable on the profit from the sale of your business.
Life after business
One of the most important issues involved in the successful transition from the business, is what you will do to ensure that you remain both physically and mentally active. While it might be the end of your business life, it should be the start of a new and exciting period, where you have both the time and money to enjoy the fruits of all your hard work.