The importance of having a plan
A startling 69 per cent of Australian businesses currently transitioning (or planning to transition) don’t know what they need to do, according to the NAB Transition Business Moments Research report. What’s more, 73 per cent of those who’ve already transitioned indicated that the process didn’t go to plan.
Just one in five Australian business owners are either planning on (or in the process of) transitioning – that is, selling a business or passing it on to the next generation of managers or owners. The vast majority continue to focus on establishing or growing their business. The problem is, whatever stage your business is at – and whether or not it’s family run – you’ll need to exit or hand over control at some point.
The good news is, even if you don’t plan to retire or exit in the near future, having a plan in place can give you confidence. It ensures that you’ve mapped out the best possible exit strategy to achieve your ultimate outcomes. So what goes into thinking through a successful business transition?
Preparing for your future
A comprehensive transition plan can benefit your business in the here and now, as well as in the future. It can help you take account of your business’s current state and its strategic direction, complementing and supporting your business plan at whatever stage it’s at.
It could also help to maximise the future value of your business. Helping to minimise your tax liability, maximise your wealth and allow you to better meet your future needs – whether that’s funding your children’s education, opening another business or leaving a legacy for future generations.
As a business owner it’s important for you to begin considering when you’d like to exit your business and how much capital you’ll need to do so comfortably. It’d also be beneficial to come up with a realistic projected business valuation. You may realise upon closer inspection that selling your business is more viable. If that’s the case, potential buyers may want to look at records from the last two to ten years, to benchmark your business and look for profitability patterns.
If you’re changing leaders, you need enough time to identify and prepare them. Putting a comprehensive succession plan in place may help you reap considerable benefits, particularly with your staff, customers and suppliers. They’ll likely respond positively to clear communication that’s provided well in advance, as this gives them time to adjust to how the business may look under new management.
You might also find that if you’re faced with a major life event in the future, that a detailed, long-term plan could help simplify your decision making under stressful conditions.
Reasons for transition
While leaving may not be at the forefront of most business owners’ minds, one in four SME owners say transitioning out of their business has been part of their plans from the start. Although that’s not to say they have an actual blueprint in place.
There are, of course, many reasons why a business owner may begin to plan their transition. Some are motivated by a change in the marketplace or their personal life. Then there are those who simply decide it’s time to take a step back and explore new opportunities.
Most of the prompts are highly personal – not surprising when you consider that more than a third of business owners see their success as the foundation for their family’s financial future. In fact, the top three reasons for transitioning are all connected to enjoying the simpler or important things in life. This suggests that planning for transition can allow you to do what you want on your own terms, when the time comes.
Explore some common motivators for business transitions:
- 38% want to change their lifestyle / improve life balance
- 32% want more time with family
- 27% want to travel
- 24% been part of their plan from the start
- 21% reduce the stress of owning a business
- 21% want to start another business
- 18% deteriorating health
- 17% declining business performance
- 17% want to focus more on other businesses
- 17% approached to sell or share business
- 13% staff turnover
- 10% disagreement with business partner
- 6% life event
Other business moments
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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.