Both John and I have been talking to clients that are looking to sell their business recently. They’re at the age and stage when it’s time to look at how to get out of the business and of course they want to maximise the value for the sale but also to ensure that the business carries on.
An ageing population, combined with the dynamic of younger generations who seem less motivated to own their own business, tests long held assumptions that the sale of our businesses will be our future superannuation.
SMEs need to focus on extracting the capital value of their business, and with an increasing number of those businesses expected to come onto the market in the next few years, we can expect the gap between the good and the bad to grow.
Good businesses will continue to sell and command a high price, whereas poor performing businesses will at best come under greater price pressure and, at worst, be unsaleable.
The ideal timetable for an effective succession plan is three to five years from initial plan through to final succession. In a perfect world, we’d recommend a minimum of two years to prepare and in a sense groom the business for sale.
Grooming the business is essential in maximising its value and the capital you eventually extract from it.
You essentially have four options:
- Sale of the business
- Generational succession – i.e. sell to a family member
- A management or employee buyout
- A structured liquidation of the business assets
Considering your potential buyers and identifying the most likely ones can be increasingly useful in determining your likely succession plan.
Possible buyers include:
- Family members
- A competitor
- A supplier
- A business in a similar market
- An employee
A clear succession process provides a structured plan, enhances efficiency, assists in delegation of key elements, and provides for greater certainty of a successful outcome.
Key steps include:
- Meeting with essential advisors
- Choosing the most appropriate succession option
- Diagnosing the business by considering an internal due diligence of both financial and non financial matters
- Completing a valuation
- Agreeing on a succession timetable
- Developing and documenting the structured succession plan
- Taking the business to market
- Filtering enquiries
- Completing the sale agreement
- Completing settlement
- Dealing with post settlement matters
Your accounting team is a key part of the succession planning process. The skills we can bring to the due diligence, valuation, business preparation, and in fact the entire succession planning process cannot be underestimated. We have assisted many clients over the years through all types of succession plan. If you’re “at that stage” of thinking about how to ready your business for sale, give us a call.