For many of Australia’s army of small business owners, keeping their operations running profitably in the here and now is usually the most pressing priority.
Preparing for the next step – selling or transferring ownership of the business to a family member or external buyer in the future – can often take a backseat.
Close to 90 per cent of businesses lack an ownership transfer and sale plan and even fewer have a retirement plan for their CEO or managing director, according to Family Business Australia’s Family Business 2021 survey.
But not developing a succession plan until you’re ready to move on may mean there is not enough time to complete a successful sale, or to train and transition a new leader to take your place.
Formal planning can increase the likelihood of a smooth handover, minimising disruption to operations and creating greater certainty for your customers and employees.
For that reason, creating a succession plan for your business or reviewing the arrangements you currently have in place, should be on your agenda for 2023.
Identify likely successors
Considering who your successor is likely to be is a good place to start, according to Steve Enticott, the founder of accounting and business advisory practice CIA Tax.
It may be there’s a family member, long term employee or associate who’s interested in stepping into your shoes when the time is right. If not, you may look to sell your business on the open market, to a competitor or someone looking to enter your industry.
“ Your business will represent a more attractive proposition if the key paperwork is in good order”
Get your financials in order
Going through the books will be one of the first acts of any potential successor. Being transition-ready means ensuring they’re in the best possible shape.
“Eliminate unnecessary expenditure, remove any personal expenses from the accounts and ensure your Business Activity Statements and annual returns are up to date,” Enticott advises.
“Your business will represent a more attractive proposition if the key paperwork is in good order, ready for interested parties to inspect.”
Structure your sale
Selling a business can be complex and the way your sale is structured can have a significant impact on the return you make.
It’s worthwhile to take professional advice well before you’re ready to start the transition process.
“It’s possible there will be considerations you haven’t taken into account, including the optimal timing, tax-wise,” Enticott says. “Discussing your plans with your accountant can help ensure you end up in the best possible position.
Post transition cover
If your business operates in the professional services sphere, you may need to maintain insurance cover for a number of years post-transition, according to Steadfast Broker Technical Manager Michael White.
“Run-off insurance can cover former owners against claims that arise after they’ve ceased operating a business,” White says.
“If you don’t have an adequate policy in place, it’s possible you could be held personally liable.”
Cover for every stage of your small business journey
Wherever you’re at on your small business journey, having appropriate insurance is a good way to protect your enterprise. To review your cover, contact your broker today.
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This article provides information rather than financial product or other advice. The content of this article, including any information contained in it, has been prepared without taking into account your objectives, financial situation or needs. Information is current as at the date the article is written as specified within it but is subject to change.
Important notice – Steadfast Group Limited ABN 98 073 659 677 and Steadfast Network Brokers
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