Finance brokerage Mortgage Choice recently released its Australian Financial Savviness Whitepaper, which found that 53.3 per cent of SME owners have no succession plan in place.
This was despite more than half (56.7 per cent) admitting that the profits from the eventual sale of their business would fund their retirement.
“This is an alarming figure but it does not come as a surprise,” said Mortgage Choice CEO John Flavell.
“Small business owners are notoriously time-poor and they have to deal with many immediate issues in order to successfully manage the day-to-day operations of their business. As a result, planning for the future often takes a back seat. But the reality is, no one can predict the future and sometimes things happen that will affect the future trajectory of a business.”
He added: “Succession planning is not just about planning for when you retire, which may be decades away, but planning for the unexpected. Who will take over the business should you be unable to work? What will happen to your employees? How will your business continue to be profitable in your absence?”
The results reflect similar studies in the preparedness of business owners to sell or step away from their business.
HLB Mann Judd business adviser Nicholas Guest has said that many business owners operate under the assumption that their children will take over the business, only to discover when they want to retire that their children are unable to fund the business.
“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.
Other challenges involve the time it takes to sell a business is often grossly underestimated – leading to either a blowout in retirement plans or being forced to accept an inferior price for the business – and a loss of one or two key customers who catch wind of a possible sale and decide to leave.
“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 said.