Many business owners may view their business as their superannuation fund, meaning they don’t contribute to superannuation or see the importance of putting funds aside, instead planning to sell their business to fund their retirement.
This may be a good idea in theory, however due to the dynamic nature of modern business, things have changed in more recent times and we need to be mindful of the impact of these changes. You only have to look at the impacts of the GFC and how the stability of a country can change overnight, so having alternative options in place should help mitigate some of the unknowns.
Succession planning is about having a realistic plan in place for when you want to exit your business.
Some of the options available to business owners are to sell or lease the business, appoint an employee to run the business or pass the business on to a family member. It is important that business owners ask themselves some important questions about each of these options.
If you plan to sell the business, is there someone willing and able to purchase it from you? Can it be sold within your required time frame, and at the price you need?
Is there someone who could lease your business if that’s what you’re hoping to do? This approach and selling the business both rely heavily on its profitability, based on the financial accounts.
If you choose to appoint someone to run the business for you, you will still be reliant upon the profit from the business to support your retirement. Is the profit sustainable if you’re not actively involved in the business’s operations?
Be very careful if you are assuming a family member will take over your business, it’s not uncommon for the family member not to realise this is the expectation. Communication is key so make sure you have this conversation early on, keep a record of it and maintain expectations of timing that work for both parties, with a contingency plan in case their circumstances change.
Succession planning is also important to ensure your financial wellbeing in case something happens to you or another stakeholder in the business at any time, so don’t leave it until you’re planning retirement. Any business issues should be reviewed on a regular basis using ‘what if’ scenarios, including back up plans should things not go according to plan.
Now is always a good time to make a plan.