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.