It's estimated that 25% of Australia's total population can be described as baby boomers people who were born between the years of 1946 and 1966. The baby boomer generation is one of the country's most successful cohorts, who still own and operate a considerable share of 2.2 million actively trading businesses in Australia.
As a significant portion of baby boomers look to wind down and enjoy their retirement over the coming years, the volume of businesses for sale is expected to rise substantially.
Keeping in mind that the financial assets owned by the baby boomers (including businesses) represents an enormous segment of overall wealth in Australia.
With the possibility of business sellers outweighing prospective buyers, it's now critical to futureproof your business in order to enjoy the financial stability and retirement lifestyle you've worked hard to earn.
The next 10 15 years will see a large number of baby boomers transitioning to retirement. For PAYG employees, this transition will be relatively straight forward calculated on current superannuation holdings and high-value assets, such as the family home. However, for business operators, the path to a successful retirement that reflects the true value of your business can be more complex. Here's 3 recommended methods to maximise the sale of your business:
2. Consider your exit strategy
Many business owners spend so much time focusing on profitable operations, that they don't have an opportunity to consider a comprehensive exit strategy. Whether they're planning for retirement in 6 months, 2 years or 10 years, a prudent business operator will begin to consider their options well in advance.
Planning an exit strategy today will help prevent every business owner's worst nightmare a fire sale. Having a well-developed exit strategy will also protect business owners against changing life factors, such as health or family circumstances.
Many successful business owners may expect to pass their business onto a successor, but have not formalised these conversations. Whether you're hoping to pass the reigns to a family member, friend or colleague documenting and implementing succession plans will safeguard your future.
Effective succession planning also enables you to properly mentor the individual about the inner workings of your business, and offer the strongest chance of its continued success. Furthermore, depending on how you sell your business, the individual taking over may need to plan for appropriate financing.
4. Affairs in order
Business owners often need to adapt and evolve with changing market conditions, in order to enjoy prolonged success. As a result, many businesses may encompass convoluted or inefficient legal and accounting structures, that were undertaken over a long period of time.
To maximise the value of your business sale, it's worthwhile ensuring that all financial and legal affairs are in order. Streamlining operations to ensure your business is appropriate for sale also means that its value can be appropriately determined, even at short notice.
5. Expert advice
If you're unsure where to get started in developing a successful exit strategy for your business, you can seek expert advice. Consultants such as Lloyds Brokers can help prepare your business for sale providing you with evaluations, appraisals, and the critical steps involved in a successful sale.
Prepare, Prepare, Prepare
Preparing a business for the possibility of an untimely death is crucial for ensuring continuity, protecting the interests of stakeholders, and minimizing disruption. Here are the key steps a business owner should take to get their business affairs in order:
Develop a Succession Plan Clearly identify who will take over the business whether it's a family member, business partner, or an external party. Make sure this person is prepared and has the necessary skills. Create a detailed, written succession plan outlining the transition process, responsibilities and timeline. Share this plan with key stakeholders.
Create a Buy / Sell Agreement If you have business partners, establish a buy-sell agreement that specifies how your share of the business will be handled in the event of your death. This could involve the remaining partners buying out your share. Often, life insurance is used to fund buy-sell agreements, ensuring that the surviving partners have the necessary capital to buy out the deceased owner's share.
Organize and Update Legal Documents Ensure your personal will is up-to-date and includes provisions for the distribution of your business assets. Consider setting up a trust to manage business assets for heirs or beneficiaries. Designate a trusted individual who can make legal and financial decisions on behalf of the business if you become incapacitated.
Document Key Business Information Ensure that all critical business processes and operations are well-documented. This includes customer information, supplier details, financial accounts, and key contacts. Maintain a secure and organized system for storing important documents, contracts and passwords. Ensure that trusted individuals have access to this information.
Review Insurance Policies Ensure that you have sufficient life insurance coverage to protect your family and the business. This could be used to pay off debts, buy out your share, or provide income for your family. This type of insurance provides financial support to the business in the event of the death of a key individual, helping to cover costs associated with finding a replacement or mitigating the financial impact.
Communicate with Stakeholders Discuss your plans with your family, business partners, and key employees. Make sure they understand their roles and what is expected of them. Have a plan in place for how the news of your untimely death would be communicated to employees, customers and other stakeholders.
Regularly Review and Update Plans Life circumstances, business conditions, and relationships can change. Regularly review and update your succession plan, legal documents, and insurance policies to ensure they remain relevant. Work with legal, financial and business advisors to keep your plans up to date and ensure they comply with current laws and best practices.
Establish a Contingency Fund Maintain a contingency fund within the business to cover unexpected expenses or financial difficulties that might arise after your death. This can help the business continue operating smoothly during the transition period.
Business Continuity Plan & Estate Planning Work with a tax advisor to minimize estate taxes and ensure that your business assets are passed on efficiently. This may involve strategic gifting, trusts, or other tax-efficient structures. Develop a business continuity plan that outlines how the business will continue to operate in the event of your death. This plan should address potential disruptions and outline steps to maintain operations.
By taking these steps, a business owner can ensure that their business is well-prepared for the possibility of their untimely death, protecting the interests of their family, partners, employees and other stakeholders. This preparation not only secures the future of the business but also provides peace of mind to everyone involved.
