The aging process cannot be stopped. Accepting this is very difficult for a lot of business owners who have been the centre of their business and derive enjoyment from their working environment. SME’s differ from larger businesses, as the leadership does not change frequently, if at all, and succession planning does not occur regularly.
The options
- Wind the business up and sell the assets
- Sell to a third party
- Pass the business onto suitable members of staff
- Pass the business on to family
Overview
Assuming, winding up and selling the assets fails to achieve the cash needed to fund the exit then the next five steps are an overall guide for business owners planning to escape their business.
- Have a think about what you will do when you retire. Draw up a wish list of things you would like to do, then try and double it.
- Get a personal financial plan from a financial planner. They will look at your financial position holistically and effectively do a “cash flow through retirement” for you.
- Plan how you will get out of the owners’ trap. A sign that you are in the trap is if you are not taking holidays, or if you do, the business has slowed up while you are away.
- Get the business valued so its worth can be added to your other investments. Start this early, as if you need to make changes to maximise the valuation, it will take time.
- Find a buyer and work out the financial transition to whoever is taking over and formalise this with help from a lawyer.
The sale process
It can take up to 5 years to prepare a business for sale, find a buyer, do the due diligence and a handover period applied where the owner works in the business for one or two years. To achieve the best price the owner must be flexible as all buyers are different.
The main factors that impact price are: whether accounts are up to date and reliable; the growth potential; risks if a key staff member, supplier or client were removed; how healthy the cash flow is; whether revenues are reoccurring; whether the product or service is sufficiently differentiated; and the customer satisfaction level.
So, whether you want to sell or pass your business on now or at some time in the future it makes sense to start preparing now—the added benefit is that you will be adding value anyway.
