David was a 53-year-old owner/operator of a successful business providing professional services to the building and construction industry. He was the key revenue earner in his business, he had no formal succession plan in place, and had always rejected merger talks with like businesses for fear of losing control.
David had been planning to sell his business to partly fund his retirement. He hadn’t realised, however, how the shortfall in his business value will affect his future lifestyle.
Based on David’s retirement goals, his financial adviser estimated he would need $1.25 million in retirement assets at aged 60 to fund his retirement lifestyle. However, David’s projected income-earning retirement assets were calculated at just $575,000 – a value gap of $650,000.
If David had done nothing, he would have had to accept a lower standard of living at retirement or continue working well past his desired retirement date.
Approach
David’s first step was to complete a business value gap analysis. This identified his value needed at sale, the value gap and future profit target. The value gap analysis also showed he could close his value gap if he was able to increase his business profit ($50,000 in the first year). David was confident that he would be able to achieve this with business advisory support.
Once David had identified his future profit target, he implemented procedures to grow income and improve job profitability. Growth strategies included purchasing a new job costing system to accurately record job income and expenses. David also segmented his clients to focus on more profitable work and later identified some niche marketing opportunities. He has fewer clients now but he is making more money.
David’s succession strategy included joining a network of similar businesses to share training and professional development costs and selected administration functions. Sharing costs and functions with similar businesses is one way of retaining control but identifying like-minded business owners, one of whom may be the future buyer of his business.
Outcomes
Based on knowing his business value gap and its implications for the sale of the business and his retirement lifestyle, David put in place growth strategies and a succession strategy which aimed to close the value gap, increase the likelihood of a profitable sale of the business and enable David to retire in his desired lifestyle.
The information (including taxation) contained within this article is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Rosenfeld Kant strongly suggest that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances.
