If there is even the slightest chance that you will exit your business in the coming year, now is the time to do some Business Succession Planning. Leigh Riley tells you how.
Happy New Year for 2012!
Is 2012 the year you will exit your business? If so, here are six essential tips to considerwhen considering your Business Succession Planning
Many people believe that they will decide when they will leave their business, yet the statistics show that 51% will leave prior to the time intended for various reasons. If 2011 is the year you believe you would like to leave, you will need to think about how you can realise the financial rewards from a lifetime of effort. There are a few things you can do to ensure you maximise your outcome to a smooth succession and here are my top tips for you to follow:
1. As early on as possible, you should be planning your exit and eventual sale, so get your business in order!
You’ll want to build a safety net that will guarantee you a price for your efforts. When you sell a house, you present it in the best way that you can to attract buyers and maximum price. Selling your business is the same.
Make your business something that someone will want to buy. Understanding what buyers want is the key. A business with good systems and customer management processes, market penetration, strong cash flow with profitability, and well trained people so that the business does not depend upon you to operate it, will always attract a buyer at a better price.
Engage a Consultant to sharpen up your business edge and boost your business valuation, in the same way you would engage a tradesman to fix up the loose ends around the house or a personal gym trainer to help you shed some of those extra pounds.
2. Remember it’s not what you sell your business for that will count, it is the amount you keep after tax that will provide you with the most favourable outcome, so tax planning prior is essential from professionals that understand the impact of succession.
When you seek advice from Succession Planning Specialists that are working as a team, you’ll get a better outcome. You don’t go to a general practitioner if you need an orthopaedic specialist and the same goes for business matters that need special treatment.
To put yourself in position for the best financial outcome, you will want a team of Specialists from accounting, legal, risk management, and business broker willing to work in concert to devise your position of strength when cashing in on years of effort in the most tax effective manner. They can also approach potential suitable buyers on your behalf when discretion is necessary due to potential market impact that may be caused by an impending sale.
3. Determine who the potential buyers may be as this may impact the method used in the changeover. You may have to think outside the square when an immediate buyer does not come to mind. If you are fortunate, a fellow proprietor may be the prime candidate if you are in a co-owned business. If you are a sole proprietor, you may have staff or a friendly competitor who maybe a likely candidate to buy you out. The suitable candidate and their ability to pay for your business will impact the method for changeover.
4. Decide how the new proprietors will fund the buyout and on what terms. If you’ve been in business for a while, the chances are that your business has grown significantly in value. Funding your purchase price may require some time and thought to ensure a prospective sale proceeds smoothly, enabling you to realise all of your hard earned equity in cash. It may be useful to implement a key staff reward system whereby shares in the business rather than cash bonuses paid over time can help to facilitate the buy-in. Capital raising strategies for smaller companies may also be effective to allow you to release your equity.
5. Deal with liabilities and personal guarantees related to the business as early on as possible, as these don’t retire nor die with you. You want your succession plan to adequately alleviate you of these responsibilities when you exit from your business.
6. You may not be able to leave the business when you choose, so it is essential to include planning for contingencies. Unexpected exits such as poor health, disputes, divorce, destruction due to environmental or market forces and death can leave you in a weakened position.
Your succession plan can be designed to provide you and your family with a pre-arranged price with tax effective terms and insurance to ensure adequate funding at your price.
You can find a lot more detail about the essential points made here in the book "Your Business Succession". For your FREE customised assessment to determine how well prepared you are to exit your business, go to the Business Exit Quiz. It takes about 3 minutes to complete and provide you with details of the areas you need to focus on to ensure the most profitable outcome for you when you leave your business.
Here's to your Profitable Business Succession and your prosperity for 2012!
Ask “The Exit Experts” how you can take control of your business, for profitable exit through most circumstances. www.YourBusinessSuccession.com ph. 1300 499 225