Succession planning is becoming the key to a successful, financially-secure and worry-free transition to retirment. However, as Gunilla Miranda reports, a succession plan can't be produced overnight.
“If you have not made any preparation, expect the process to take two years. It takes time to systemise and document the business. It is, of course, possible to do it quicker, but plan for two years and you will not be disappointed,” said DFK Australia New Zealand partner Robert Shelton.
If you have no plan at all, sit down with your board or partner and answer the following question: Is a family member taking over your business, or are you selling it outside the family sphere?
The sale process is, of course, different if it is through the owner’s choice, rather than out of necessity – such as a downturn in health, disability or death. If selling to an outsider, start with the following questions:
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What are you selling? Shares? Assets?
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If selling assets, what assets are you selling/transferring and keeping? Are you selling intellectual property? Are they transferable? Know-how?
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Timeframe: when do you want to exit?
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Write a one-page brief overview including history, milestones and strong points. It is important that you don’t give away any trade secrets here. Organise a confidentiality agreement before revealing any secrets.
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The most important question: Who is the potential buyer? In small business, for example, 75-80% of businesses are sold to someone the owner already knows, such as a supplier or client. Rarely does someone walk in from the street to buy.
When you know where the buyer is coming from, it’s time to think about price.
Troubleshooting
There are many things that can go wrong, such as the buyer not being able to obtain finance, so it’s important to be realistic about the timeframe and the price, said Shelton. He offered the following pointers:
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Start early.
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Be realistic about the timeframe and price.
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Know what you are selling (and what are you not selling).
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Be open to alternative sale processes (e.g. I want your assets and your staff; I want your clients but not your equipment; I can only pay two-thirds; vendor finance).
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Know the income tax, GST, CGT, stamp duty and other tax issues surrounding the sale.
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Analyse the cash flow and debt obligations around the sale.
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Review your intellectual property asset and intangible liability.
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Inform your team appropriately, especially senior members.
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What happens after the sale? Will there be a restrictive covenant for the next five years, for example, or do you need to work again within six months?
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What are you going to do after the sale? You are used to a busy lifestyle. What are your plans?
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Above all, get advice: talk to your accountant early and continuously.
Whoever is going to take on the reins Graeme Bellach, partner of CIB in Parramatta, stated that “in succession planning, start early to groom the person who is taking over”.
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