Succession Planning and Retirement

succession planning

You’ve worked hard to build your business, and if you’re typical of most business owners, this is going to form the bulk of your retirement nest egg.  Once you’ve made the decision it’s time to move on from work, maximising the value of your business should you choose to sell or hand on to a family member could mean the difference between a comfortable and just bearable retirement.

So before you book in for those golf lessons or offer to take more time to babysit the grandkids, it’s important to first decide how and when you are going to exit the business.

Succession planning is an integral part of you overall retirement planning strategy.  It’s important to seek the right advice and plan early, as this will help make the transition smoother and ensure you maximise the financial return.

So let’s explore some things to get your thinking started:

Start early

  • Know when you are wanting to retire
  • Have an idea of the ideal type of buyer to take over your business, so you’re well prepared to speak to a business broker when the time is right.

Get the Business “Sale Ready”:

  • Start preparing your business to be “sale ready” whether you’re selling to an outside buyer, or handing over / selling to a family member, the same processes need to be in place to ensure a smooth handover.
  • Ensure you have documented systems and processes in place
  • Ensure your financial records are sound and clean and show the business value
  • Business profitability is key to getting a good price
  • Know what you need the business to be worth to fund your retirement and work towards this

Who will buy

  • Having open dialogue with family – is keeping it in the family a realistic option? Do they have the skills, capacity and show interest?
  • Selling on the open market – what demand is there for this type of business? Are there competitive businesses for sale?  What is the future scope?
  • Selling to an employee? If they’re keen and capable, you need to put a plan in place to ensure you can help get them ready for handover, have a training and mentoring process in place, and ensure the financials stack up so you will get paid – agree on price and timing in advance and ensure a contract of sale is in place.
  • Getting a manager – if you don’t want to part with your business but it’s time to take a step back, an option could be to run the business under management. Having good processes and systems and staff in place is the key to success under this strategy and ensuring you select the right person to head the team is imperative.   Ensure this person has passion for the business and a vested interest in its continued success – often a profit sharing arrangement or partnership can be a good option to ensure longevity.

Value – what’s your business worth?  Are there competitors for sale?  How do you value time traded and goodwill?

  • The first step is to understand how a business is valued. Do your homework.
  • Length of trade is irrelevant if there is no profit. Just because your business has traded for 40 years doesn’t mean there’s the value to get your return on investment.  Having clean books and good profit is the key to getting a good return come sale time.
  • Ensuring you have enough value in the business to fund your retirement is key. If the value isn’t there, retirement plans may need to change or a supplementary income stream may need to be sourced.

Taxation on sale – there could be implications come sale time, so forward planning is important.  Our goal is to legally minimise tax paid so you maximise the benefits to fund your retirement.

Wills and insurance – an often overlooked necessity but it’s imperative that once your plans are in place that your Will is adjusted to reflect your wishes.  Insurances may also need adjusting to reflect your changing needs.

Don’t get caught having to sell your business unaware due to a health issue or other critical family  event.   With the right focus and plan you can maximise the return on your investment, ensure a smooth transfer of ownership or management, minimise business disruption, and reach your retirement goals.

To discuss your next steps and start planning for that golden retirement, please give your trusted PJT advisor a call today on 07 5413 9300

 

GENERAL ADVICE WARNING: This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.

Merit Wealth LogoPJT Accountants & Business Advisors Pty Ltd  CAR Number 1243046 ABN 75 116 182 873  is a Corporate Authorised Representative of Merit Wealth Pty Ltd ABN 89 125 557 002, Australian Financial Services Licence Number 409361

Jodie Thompson  ARN 277884, Wayne Patten ARN 277883, Matthew Dunn ARN 1243039 are Limited Authorised Representatives of Merit Wealth Pty Ltd ABN 89 125 557 002, Australian Financial Services Licence Number 409361

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About the author

Jodie is the Managing Director of PJT. She leads the team in making sure we are providing you with exceptional service and are always staying one step ahead. She now puts her experience in growing businesses into PJT.