With many Baby Boomers reaching retirement age, there has been a rise in the number of mature business owners seeking to exit their businesses. Justin Greiner, CEO of JBWere reports on what business owners need to know when reaching this point in the business life cycle.
The latest Quarterly SME survey by NAB Economics highlighted that around 1 in 10 SME owners identified themselves as “transitioning” business owners (that is, exiting or selling their business). What is surprising is how few business owners are actively prepared for this major life and business moment.
Seeking to exit your business is often a decision predicated on a number of different reasons which can include changes in the market, a desire to travel more or be actively involved in raising grandchildren, health concerns or the feeling that you’ve reached your business goals and are looking for the next big adventure.
JBWere’s research tells us that the majority of SME owners are looking to sell their operation do so via a trade sale, followed by sales to management or family members.
When you’re in business, you tend to concentrate wealth accumulation and preservation in the one asset – your business. This can sometimes leave retirement and “life after business” savings vulnerable.
If you are thinking about exiting or selling your business, there are three key themes worth considering.
1 – What do you want for the business? The more than money question.
While many business owners have some idea of what their business is worth, it can be hard to determine an accurate valuation. We always recommend seeking professional advice, so that you are clear on what your future options are.
This can also help you determine how to convert concentrated business wealth into personal and family wealth that is adequate for retirement. Estimate what constitutes a comfortable retirement for yourself and your family – this will help shape the range and mix of options available to you.
Other considerations include the mechanism for sale – a trade sale likely means you won’t have any attachment to the business as opposed to selling to a family member, which has its own pros and cons. What is more important to you?
Some business owners look to step away completely from the business whilst others would like to work a day or two per week.
In other words, exiting a business is more than numbers.
Many business owners that we work with also want to leave a lasting legacy. This could involve giving back to their employees, such as through an ongoing employee award, or to the wider industry.
2 – Start a transition strategy now
Many SME owners understand the importance of a robust and transparent transition strategy. Yet many are unprepared on what this actually looks and feels like.
Developing a plan should start with a list of who to talk to and when to seek external advice. It is likely you will need a team of experts, including a lawyer, accountant and wealth adviser, to work together with you to achieve your transition goals.
While circumstances are unique for each business owner, there are some common challenges they all face.
For example, many business owners have prepared the money for the family but have not prepared the family for the money. An external adviser can act as a bridge between business and family and provide an integrated approach to transitioning your business to personal wealth, help determine your future investments for income and structure family affairs. They can also actively engage children throughout the process, ensuring they are prepared to manage their legacy one day.
Advisers can also help you make a lasting impact beyond your business through the act of giving back to your business, your industry or your community. Philanthropic pursuits can have a lasting impact for many years to come.
3 – Communication is key
Exiting a business is a sensitive topic for many business owners. Some are not comfortable talking to their children about what’s to come and what the expectation is after the business is transitioned to a seller or exited.
The more successful legacies tend to be the result of relinquishing control by the business owner whilst they are still alive and in a capacity to transition their affairs. Putting off the inevitable is counterproductive to wealth preservation, and can be a reason why families experience an erosion of wealth over time.
Even if dependents and children show no interest in taking on your business, they still need to be adequately prepared for any resulting wealth transfer to come.
Again, I come back to a common theme throughout this piece, which is starting the communication early and seeking professional advice.
At JBWere, we work with business owners every day – seeking to ensure that the transition to their next stage is simple, clear and beneficial from a financial and personal perspective.