Exit plan equals business survival
After putting years of effort into growing a business, failure to plan an exit strategy at retirement can see just that: failure. With a global survey showing 84% of owners hope to sell in the next 10 years, it’s concerning that 44% did not have a plan to achieve this.
The bond most small business owners have with their company is unlike that of the typical employee manager: emotion can creep in.
Typically, this sees owners procrastinate on exit or succession planning around retirement age, because it becomes “too difficult” or too fraught with emotion. They may also see it as “losing control”. Then again, there are those who don’t understand the options, so eagerly dump it in the “too hard” basket.
In the book Options For Change (RIRDC, 2003), consultant Mike Stephens wrote that it’s never too early to start planning your exit. He says succession planning is vital to an enterprise’s continued smooth running. Failure to plan, particularly in family-owned businesses, can embitter and estrange a family — not to the mention the negative effect on the business.
The point is rammed home by Business Victoria (BV), which says the answer to when a succession plan should be created, is “yesterday!!”.
According to BV literature, “The first time many business owners start thinking seriously about a succession plan is at retirement. When left too late, the only strategy available is to do a quick ‘tidy up’ and put the business on the market.”
Along these lines, Lisa Weber, MD of business exit consultancy SuperStar Consulting, highlights some points for real concern:
• 50% of business owners plan to use their business as a primary funding source for their retirement.
• 84% of small businesses are very dependent on the owner, yet only 28% felt it would be difficult for someone else to take over.
• Many business owners don’t plan for exit if they have no one to leave the business to, or they think their business is too small.
Business Victoria says the most successful succession plans are carefully and slowly considered over a long period of time. They are implemented gradually and are constantly monitored and reviewed.
But most business owners don’t do this.
Chris Dionne, global director at international business consultancy Shirlaws, says research his company commissioned found business owners tended to talk about their retirement, but never actually properly planned for it.
He said without an exit plan, Australian business owners planning to sell their operation when they retired, risked not getting its full value.
He said lack of such planning “invariably ended in staff and clients leaving the company, which resulted in a drop in productivity and therefore a loss in value for the business owner”.
Dionne said succession often took businesses three to five years to plan, and another two years for a seamless transition.
A global survey by Shirlaws, of 357 businesses from 39 countries, found while 84% of owners of SMEs hoped to sell in the next 10 years, an alarming 44% did not have a plan to achieve this.
Only 2% of Australian business owners expected to close their business down (compared with 14% in the UK and 29% in the USA), but Dionne said without planning, many more would be forced to close when the owners retired.
The survey found 21% of Australian business owners were most likely to sell their business to management or staff, 23% would maintain the business as a partnership and 16% would sell to a domestic company. Some 13% said they would keep the business in family ownership, while 11% expected to sell to a foreign company.
As with any planning, it’s vital to involve all stakeholders. It’s also wise to seek professional, outside help. This helps not only with financial and legal aspects, but removes any emotion that may cloud decisions, ensuring commonsense actions are taken that are best for the business — and the people.