American Express released its report The economy of shopping small: The future of small business as part of its annual Shop Small campaign, which found that a significant number of business owners don’t see themselves still in their business in three years’ time.
The findings were compiled by a poll of 856 small business owners nationally and 15 more in-depth interviews.
According to the report, one in four (24 per cent) cited the personal impacts of running a business as their main reason for wanting to get out. A further 20 per cent cited the long working hours as their prime motivator.
Retirement is also a major motivator (for 21 per cent), reflecting Australia’s ageing population as a higher proportion of business owners reach retirement age.
Yet despite these dreams of exiting their business, only 27 per cent admitted they have a detailed succession plan in place covering the next five years. The majority either have no plan at all (41 per cent) or only a very loose idea (31 per cent).
“While the future of Australia’s small business sector is still to be written, we can’t take these businesses for granted. Whether they be online or physical stores, we need to ensure there is adequate support in place to help businesses navigate these changes and ultimately thrive,” the report said.
‘It’s not talked about’
Kerry Boulton, of The Exit Strategy Group, said that such a lack of formalised succession plans is hardly surprising.
“It’s not talked about a lot,” she told My Business.
“I’ve been working in this area now for about eight years. It came as no surprise whatsoever that people haven’t really thought about it.
“[Thinking of] getting out of a small business is understandable, because it’s usually very tough — small businesses are tough.”
Ms Boulton said that, while there are likely various reasons for this, the main one tends to be that owners are “flying by the seat of their pants” in the day-to-day running of the business, leaving little time for forward planning for the business and, importantly, their role within it.
“My understanding is [that] they don’t know where to start,” she said.
“They’re going on with the day-to-day and then don’t even think about it, and until there is some sort of wake-up call — whether that be a health event or something to do with the family or all of a sudden getting too tired — unless there is a wake-up call, it’s just something they don’t turn their mind to.”
‘Really important’ to plan ahead
As Ms Boulton noted, making plans well ahead of time is crucial for business owners, given what is at stake.
“It’s really important — most of the time, probably 80 or 90 per cent of their net worth is tied up in their business,” she said.
“It is a little bit hard, but all people need to start thinking about is seeing how ready their business is to be passing on to somebody else. Can it transition?
“Then they need to think about their own personal readiness, and their financial readiness. And if people can do that and give themselves sort of three to five years to get some planning and thinking and planning in place, then the likelihood is that they’ll have a really positive outcome.”
Ms Boulton’s advice comes not just from professional experience, but also as someone who has previously owned and exited multiple businesses herself.
“I have three of my own businesses, so I know what it’s like,” she said.
“Of those three businesses, one had a planned exit strategy (a management buyout)... the second one I decided not to worry about selling it; I wanted to spend more time with the family, so I just graciously exited, so didn’t really do anything with it.
“And the third one sold for a motza. It was a bit like the Kerry Packer/Alan Bond situation, where someone came along and just made us an offer too good to refuse, so we said ‘thank you very much’.”
But in all three cases, the succession planning specialist said that “the business was ready”.
“I think it’s a little bit to do with the mindset that business owners could really adopt, and that is not to say, ‘Oh, I’m going to exit my business in three years’, but ‘If I’m going to exit it, how am I going to exit it?’.”