As a business owner, it’s important to regularly take time out to think about your succession plans. Transitioning a business can come in many forms, such as internal succession, trade sale, family succession or an initial public offering. It could happen quickly or be a process that plays out over a longer period of time. It’s important to note that your leverage tends to diminish with time, so having a forward-thinking mindset helps. Even if you don’t think you will be transitioning your business in the medium term, building your ideal ‘exit strategy’ is a useful exercise and may shift the way you think about key issues and how you seek to grow.
Significant technical complexity exists in any transaction, and there are many different areas to consider. This article seeks to give you a few high-level considerations to reflect on:
Be prepared for change
As you start thinking about transitioning your business, it is worthwhile considering the impact this will have on you and your family. You can avoid the feeling of seller’s remorse by considering the following:
- Are you prepared for the emotional process of selling your ‘baby’? Business succession takes time, with the best success stories usually achieved thanks to careful planning many years in advance. Finding a way to stay in a positive headspace where you can make clear, rational and thoughtful decisions is vital for your overall wellbeing.
- It is important to reflect on what life after business looks like for you. Business owners sometimes underestimate the sense of purpose and self-worth that their business gives them and struggle with life after a sale. Planning and being thoughtful about what the next phase of your life looks like will help you have peace of mind about the future.
- Revise your finances and investment strategy. Are you certain that your business sale will yield enough to ensure your family is protected? Consider how you will invest to ensure this always remains the case.
Look after your key stakeholders
Almost all business owners feel their business is part of their legacy. Most do not want to be seen as people that have ‘taken the money and ran’, at the expense of those that helped them along the way. As a result, you want to ensure you have done everything to give your business the best chance to be in great shape in the future. I recommend you consider the following:
- Your staff have been loyal advocates for the business, and you want to ensure you do the right thing by them. Any business transaction will naturally be an unnerving experience, so it’s important to have clear and open communication with them about the process and how they will be supported beyond your tenure.
- The same loyalty rings true with your customers. Satisfied customers will be your biggest supporters, so your business transition should not considerably change the nature of their relationship with you and your service. Transparent communication and a plan to guarantee your business continue to deliver will be crucial once you take a step back.
- Within reason and under guidance from your adviser, it would not be unusual to accept a lower business sale price if new buyers ensured that key stakeholders are looked after.
Engage the right experts
At some stage in life, we will all have to make a relatively high-stake decision. Having the right support from experts can help you make better-informed decisions. The sale of your business should call for professional advice.
- Your choice of corporate adviser/business broker matters. They all have differing levels of expertise, fee structures and niche areas (i.e. business size, industry etc.). When you meet with a potential corporate adviser, be confident that they have extensive knowledge, industry experience and can connect you with the right networks. Experience has shown us that when something has gone wrong with a business sale, many of the issues can be traced back to the corporate adviser not being the right fit.
- Ensure your accountant is aware and on top of their role with the business transition. Of course, you need to do your part and have clean business financials and tax returns. A thorough accountant will also ensure they have proactively considered the myriad of other complex business and personal tax accounting considerations to receive the best outcome for your future.
Unless you are a serial entrepreneur, you will likely only have one opportunity to transition a business in your lifetime. Arming yourself with the right experts will ensure you have certainty and achieve your ideal outcomes. In my experience, being clear on what you want, thinking about your stakeholders and collaborating with the most appropriate professionals are the most important ingredients in a well-executed, smooth transition to life after your business. Your advice team has extensive experience supporting business owners, motivated to help you achieve your goals. If you are thinking about your own succession event, do not hesitate to reach out to your adviser.