An ageing population combined with the dynamic of younger generations who seem less motivated to acquire a business, tests long held assumptions that our businesses will be our future superannuation. SMEs need to focus on extracting the capital value of their business and with an increasing number of those businesses expected to come onto the market in the next few years we can expect the polarisation between the good and the bad to grow.
Good businesses will continue to sell and command a high price, whereas poor performing businesses will at best come under greater price pressure and at worst be unsaleable. The ideal timetable for an effective succession plan is three to five years from initial plan through to final succession. In a perfect world we’d recommend a minimum of two years to prepare and in a sense groom the business for sale.
Grooming the business is essential in maximising business value and the capital you eventually extract from your business. You essentially have four options: sale of the business, generational succession – i.e. sell to a family member, a management or employee buyout, a structured liquidation of the business assets.
Considering your potential buyers and identifying the most likely ones can be increasingly useful in determining your likely succession plan. Possible buyers include family members, competitors, suppliers and employees.