That is the warning from HLB Mann Judd partner Nicholas Guest, who said that while many business owners may have plans to pass their business on to the next generation of the family, younger Australians in their 20s and 30s have less desire or ability to take over family businesses than in the past.
“So these founders are then confronted with the question of what to do. They might have a large part of their wealth tied up in the business,” he said.
One of the other challenges with selling the business, Mr Guest said, is that once the principal founder starts to exit the business, the value of the business tends to decline.
“It’s not unusual for some businesses to start to lose one or two key customers or for other slight changes to occur which can quite quickly lead to a decline in the value of the business,” he warned.
“[This] makes it much more challenging to market the business and attract a buyer who’s willing to pay a premium for it.”
Business succession can become especially problematic where an SMSF owns assets in the business and there’s no structured way to bring in another management team, HLB Mann Judd managing partner Tony Fittler added.
“We saw one situation where one generation exited the business and they were paid out into an SMSF and that required more debt because it extracted a lot of capital out of the business. The business then had a downturn in trade and collapsed,” explained Mr Fittler.
“The SMSF owned real property that was occupied by the business so it then became a double collapse.”
According to Mr Guest, business owners could achieve a better outcome by allowing plenty of time to plan for succession.
“Planning for these exits is absolutely critical. It’s a discussion that we try to commence as early as possible, with planning, individuals have much more opportunity,” he said.
“You'd like to think that a business owner can always have at their disposal the control around when they'll exit a business but unfortunately through an accident or ill health, sometimes these decisions are forced, and they find that they can no longer work in their business.”
Mr Guest added: “If they haven't put in some place some kind of active succession plan, it can leave other members of their family left with quite a large financial burden.”