Over the next decade it is predicted that 20 million privately owned businesses are going to come up for sale in the western economies. By any level of estimates this is a major economic consequence requiring detailed transition planning.
Given that the majority of SME business owners are part of this ageing ‘baby boomer’ population, it is estimated that between 50% – 70% will exit their business within the next 10 years. In fact half of that figure already intend to exit within the next 5 years. About a quarter simply don’t know at which point in the future they may look to transfer or dispose of their business. Consequently the need for ‘transition planning’ is imperative if the disposer of the business is to reach anywhere near the true value of their business on retirement or sale.
In a nutshell the primary purpose of transition planning is to complete the transfer of business wealth from the business to the owner in the most effective and appropriate way possible. In most circumstances, business wealth transfer happens while the owner is still operating the business, yet often at the time the owner chooses to exit, considerable wealth or business value can often be ‘left on the table’? Most of us look at a business transition as some yet-to-be determined day in the future, and because it is just some future event, it isn’t all that important to us today. But ask any business owner who has moved through transition and they will tell you that this ‘day’ was ultimately the most important day in their business life. And like all major events it requires careful planning if it is to be successful. It is an event that will impact on the rest of your life, on the way the business survives separation from you as the manager, and on everyone that can and will be affected – your family, your employees, your customers and your suppliers. But sitting at the epicentre of all this is YOU – this is your pay off for all the hard work over the last 20, 30 or 40 years, it’s about being able to walk away with your ‘chin up’ on terms of your choosing.
There are four things you must decide before you can make the successful transition:
- How much do you need to live on?
- When to you want to get out?
- Do you want any ongoing involvement?
- Are there family members or other people who want an ongoing role?
While it may not just be about money, money is certainly a big consideration. Questions that need answering include:
- What is your current financial position?
- What is the business worth – as opposed to what could it be worth?
- What tax has to be paid?