For many business owners, the pandemic has brought forward a renewed interest in succession planning. The disruption has certainly given pause for many to consider how much involvement (if any) they intend to maintain in business, particularly if retirement was already on the radar.

Whether you are feeling exhausted after the last two years or still deeply connected to the business, succession planning should be given careful consideration and never rushed. Preparation is key, both financially and emotionally.

A strong succession plan, whether you are passing on to family, selling or listing on the stock exchange, should be considered a journey – one that begins well before you hand over the reins and continues long after.

While it is possible for a well-managed and financially sound business to progress to a sale-ready position relatively quickly, for most it can take three to five years of preparation to ensure the business realises its full value potential, and to manage the proceeds of the sale tax effectively.

Early planning

In the early stages, business owners considering an exit within five to 10 years should review their personal objectives, including expected cash flow requirements. Determining the value of the business now will assist in understanding the steps needed to grow or, conversely, adjust expectations and financial planning.

Operating a business can be all-consuming at the best of times, however assessing your financial direction should involve a close examination of ‘reward for effort’ in the context of business activities. This requires a careful review of current operations, plans for growth and internal management capabilities.

Ideally, the development of an exit strategy will involve input from senior staff members, as well as sound advice from accountants, lawyers and financial advisers.

Becoming exit-ready

In our experience working with a broad cross-section of businesses, including many large family-owned businesses, the following steps are crucial in reaching a timely and financially promising exit-ready position.

  • Review objectives and ongoing cash flow needs – This should be done in conjunction with your accountant, financial adviser and lawyer.
  • Obtain an independent valuation – Understand what your business is worth now and what you need it needs to be worth at sale time to meet your goals.
  • Develop and implement strategies necessary for achieving your exit-ready goals – These should be integrated into your current and ongoing business operations well in advance of sale or hand over.
  • Seek financial planning advice – Ensure that your succession plan marries up with your personal financial planning and retirement goals.
  • Engage legal counsel – Review your corporate structures and develop strategies to address the likely return and legal risk from the business sale, again in alignment with your accountant to make the most of tax efficiencies and your financial planner for appropriate management of sale proceeds.

Sometimes larger or more complex businesses benefit from undertaking a ‘mock due diligence’ of the business to identify and address perceived weaknesses prior to undertaking a genuine transaction.

This may include assessing the following and forming a plan to address shortcomings such as:

How reliant is the business on the exiting owner?

Is the business’s legal structure appropriate and conducive to an effective exit?

How might an exit transaction be structured? If there are several options, what are the implications of each to the business and the exiting owner?

How might the after-tax outcomes for the owners be optimised?

The bottom line…

Succession is a specialised area of advice and, as indicated here, it takes time. A multifaceted strategy is required, and business owners wanting to maximise the value of their business to achieve the best possible sale price are advised not to shy away from the process.

As business accountants, we are accustomed to guiding our clients through the succession planning process, with technical support that takes into account all of the steps involved while remaining focused on the core goals.

The combined value of our tax, accounting and asset protection advice and services is realised when we see our clients exit on their own terms and at the time of their choosing, leaving behind a profitable, valuable business and proud legacy.

For more information about preparing your business for the next phase, please contact Rosenfeld Kant on (02) 9375 1200 or email gary@roskant.com.au, raul@roskant.com.au or elias@roskant.com.au.

Partnering with you to deliver efficiencies, growth and success for your business.

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.