Business owning baby boomers, says recent research, have less than seven years to get a succession plan sorted for their business if they want to exit having maximised the value of their asset. The study found baby boomers, currently aged 50-68, are well less than prepared with only 17% having completed their business succession plans and a staggering 51% not even having started yet.
And when it comes to selling a business, it’s never just a case of hanging a shingle and a buyer will arrive. These days buyers want to know that they’re buying a real and sustainable business, not just you (especially if you’re planning on eventually leaving the business).
If you’re in the lead up to working your way out and you don’t yet have a succession plan in place, you’ll need to think through questions like;
- Does the succession plan cover all the partners/owners or just one?
- Who will take over as the successor?
- Is there a second choice should the first not be available for any reason?
- How and when will you communicate that change to your staff, your key customers and suppliers, any other shareholders, the market, etc
- What plans have been put in place to train that person for the role? Is that training internal or externally delivered and over what timeframe?
- What’s the timeframe to implement your succession plan? And at what point will you relinquish the reins?
- Are there any restrictions on your leaving or the new person starting?
- What undertakings have you made that the skills in your organisation will be retained when you step down and your successor takes over?
- What contracts, licenses, permits, IP, registrations, leases, memberships, insurances, etc need to change as part of the changeover?
- Who’s preparing the document that contains all of the above information?
- Is there a buy/sell agreement that needs to be reviewed?
- Does what is allocated in wills need to change?
- What’s the market value of the business currently? How will that change over time?
- What taxes will be payable in the event of a transfer or sale?
Then after considering all of these questions, the information must be plotted on a succession timetable and followed by developing a risk/contingency register. It might seem like a lot to add to the already full plate of a business owner, but when all is said and done, do you really want to be considering all of this at 70 when you’re desperately trying to walk out the door. Best to get it underway before it’s required.
The risk of not planning succession is that there’s a tsunami of boomers looking to exit in the next 5-10 years and that will ultimately drive business sale prices down. Worse still, if you’re totally unprepared and unable to continue your business due to ill-health or the market takes a completely different direction because you miss the wave – there can be nothing left to sell.
Now if you’re not a boomer, you’ll remember that we mentioned there was an opportunity in all of this for you. Given many boomers are likely to be wanting to sell or at least put succession plans in place at some point in the next 5-10 years, if you’re a senior manager in the business there’s always the possibility that the owner will consider a management buyout or selling you all or part of the business over time – especially if you’ve already got some time in the chair.
Worth considering? You bet. Of course you’ll need to seek advice before going terribly far – but as with all things in life, if you don’t ask, you don’t get (the other party can always say no, but if you don’t ask, you’ll never know).
If you or someone close to you owns a business and is looking to exit at some point or is looking to purchase a business, and needs some assistance – we’d be only too happy to have a chat.