Why time spent now putting a smart business transition plan in place could pay off in the long term.

Selling a company you've built

Many Australian entrepreneurs understandably struggle with succession issues. Given all the effort, passion, time and emotion that goes into creating a thriving business, walking away from it can prove difficult. It may help to recognise that scailing back or stepping away from your involvement in your business can allow you to pursue other things. Many successful business owners have reinvented themselves in another field using the money they've earned and the skills they've learned.

When the time does come to leave your business behind, it’s important you work out a succession plan. This can allow you to both maximise your business' value and minimise the potential problems around its sale.

Planning for a successful succession

The best time to start succession planning is when you set up your business. While few entrepreneurs do this in reality, it’s an important consideration and best done sooner rather than later. Your first move should be to think about what you want to do with your business when it’s time for your next challenge. If you’re not going to shut it down, there are two options: sell it or bequeath it.

Selling a business can take various forms, such as a management or private-equity buyout, initial public offer (IPO) or third-party sale. When larger businesses are sold, the founder may choose to maintain some equity while passing on operational control to others. Of course, most small and medium enterprises (SMEs) don’t attract the interest of private equity firms and aren’t in a position to list on the Australian Securities Exchange.NAB research shows that most SME owners sell their business outright in a trade sale. A smaller but still significant number of owners sell to one or more family or staff members.1

The two difficult parts of selling a business are making it saleable and finding someone to buy it. For obvious reasons, potential buyers will hesitate to take over a business that’s too dependent on its founder. The most saleable businesses are those with well-documented systems and procedures in place, well-trained staff, and a strong management team. If you’re hoping to achieve the best possible sale price, you’ll need to make sure your business ticks all these boxes.

But even if it does – and also boasts a solid balance sheet and sound growth forecasts – potential buyers might not be queuing up. Between 2007 and 2017, the number of businesses on the market increased by 800 per cent.2 With baby boomer business owners about to retire in vast numbers over the coming decade, the market will become even more saturated. This means that would-be sellers will need to invest significant time and effort into identifying and winning over possible purchasers.

Passing-on-your-business checklist

As difficult as it might be selling your business to a stranger, passing it on to a family member can be equally challenging.

A good starting point is to work out which family member you want to pass the business on to. Then you need to determine if they wish to take it over. It’s not uncommon for a chosen heir to either not want the responsibility or to have their own entrepreneurial plans.

When there are multiple potential heirs, often a number of them will jockey to take control. In these circumstances, business owners generally either have to nominate one child as their successor or find a way to split their business

Important Information

The information contained in this article is correct as of August 2019 and is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.

1. Quantum, NAB Transition Customer Lifestyle Report, September 2018

2. https://www.smh.com.au/business/small-business/retiring-baby-boomers-struggling-to-sell-businesses-as-values-of-smes-decline-20170425-gvrrzu.html

Want to keep exploring?

Other Business Moments

Making a plan to sell your business

A guide to how to sell a business, or pass one on.

Time to diversify? Here are five ways to go about it

Diversification in your business can be key to profitable growth.

Tips for entrepreneurs investing in the next big thing

A guide to angel groups and venture funding.

After more?

Super and investments

Take control of your future with our super and retirement options.

Calculators and tools

When you're in business, it pays to have a game plan with a strong partner supporting you.

Private banking

For us, it's personal. At NAB Private, we're driven by the desire to create great things for our clients.

Let's talk

We're ready to help you

Request a call back
Call us
Visit a branch